Use the information below to answer the following question(s).Low-Cost Rentals Ltd.incurred $60,000 of common fixed costs and $90,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used. For both departments, common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used.
-The costs of unused capacity are highlighted when
A)actual usage based allocations are used.
B)budgeted usage allocations are used.
C)practical capacity based allocations are used.
D)the dual-rate cost allocation method allocates fixed costs based on actual usage.
E)variable cost variances are evaluated.

Question

Use the information below to answer the following question(s).Low-Cost Rentals Ltd.incurred $60,000 of common fixed costs and $90,000 of common variable costs.Data are provided below for the capacity allowed and the capacity used.  For both departments, common fixed costs are to be allocated on the basis of capacity available and common variable costs are to be allocated on the basis of capacity used.
-The costs of unused capacity are highlighted when
A)actual usage based allocations are used. 
B)budgeted usage allocations are used. 
C)practical capacity based allocations are used. 
D)the dual-rate cost allocation method allocates fixed costs based on actual usage. 
E)variable cost variances are evaluated.

Quizplus · Accepted Answer

The costs of unused capacity are highlighted when practical capacity based allocations are used. This is because practical capacity is the actual capacity of a department or facility, which takes into account unavoidable downtime for maintenance or other reasons. Allocating costs based on practical capacity ensures that the costs of unused capacity are not unfairly allocated to departments that did not use it.

Use the Information Below to Answer the Following Question(s)