Deck 16: Allocation of Support-Department Costs, Common Costs, and Revenues

Question 1

Answer the following questions using the information below:
The Laserlight Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:


-If a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Night Light Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

A) $375,000
B) $450,000
C) $390,000
D) $435,000

Answer 1

$435,000

Question 2

The Starlight Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:

Required:
a. If a single-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
b. For the month of June, if a single-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.
c. If a dual-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
d. For the month of June, if a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

Answer 2

a. Fixed costs $240,000 / 20,000 practical capacity hours = $12/hour
Single-rate cost-allocation = $12 + $10 = $22 per hour
Lamp Division 800 × $22/hour = $17,600 per month
Flashlight Division 450 × $22/hour = $9,900 per month
b. Lamp Division 700 × $22/hour = $15,400 per month
Flashlight Division 400 × $22/hour = $8,800 per month
c. Fixed costs $240,000 / 20,000 practical capacity hours = $12 / hour
Budgeted costs - Lamp Division
(800 × $12/hour) + (800 × $10/hour) = $17,600 per month
Budgeted costs - Flashlight Division
(450 × $12/hour) + (450 × $10/hour) = $9,900 per month
d. Allocated costs for June - Lamp Division
(800 × $12/hour) + (700 × $10/hour) = $16,600 per month
Allocated costs for June - Flashlight Division
(450 × $12/hour) + (400 × $10/hour) = $9,400 per month