Many companies use the dual-rate method of cost allocation.
Required:
A.How does the dual-rate method work?
A.The dual-rate method involves creating two overhead rates,one for variable costs and another for fixed costs.The variable costs are normally allocated on the basis of short-run usage of the service department's output;fixed costs are allocated on the basis of long-run usage.
B.Is there any advantage of the dual-rate method over a method that uses a combined,lump-sum single rate? Briefly explain.
B.Yes.When a single rate is used,the cost allocated to a user department may be influenced by the amount of service consumed by another department.For example,a user department's service consumption could remain flat;yet the amount of cost allocated to that department could increase or decrease over previous amounts based solely on actions of other users.Dual rates eliminate this problem.

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The Answer of Many companies use the dual-rate method of cost allocation.
Required:
A.How does the dual-rate method work?
A.The dual-rate method involves creating two overhead rates,one for variable costs and another for fixed costs.The variable costs are normally allocated on the basis of short-run usage of the service department's output;fixed costs are allocated on the basis of long-run usage.
B.Is there any advantage of the dual-rate method over a method that uses a combined,lump-sum single rate? Briefly explain.
B.Yes.When a single rate is used,the cost allocated to a user department may be influenced by the amount of service consumed by another department.For example,a user department's service consumption could remain flat;yet the amount of cost allocated to that department could increase or decrease over previous amounts based solely on actions of other users.Dual rates eliminate this problem.

Many Companies Use the Dual-Rate Method of Cost Allocation