S.
M Hasan Al Hafiz ID: 2110423
ACN-405 Handwritten Assignment
Chapter-15
15-16 Single-rate versus dual-rate methods, support department. The Cincinnati power
plant that services all manufacturing departments of Eastern Mountain Engineering has a
budget for the coming year. This budget has been expressed in the following monthly
terms:
The expected monthly costs for operating the power plant during the budget year are
$20,000: $8,000 variable and $12,000 fixed.
Required:
1. Assume that a single cost pool is used for the power plant costs. What budgeted amounts
will be allocated to each manufacturing department if (a) the rate is calculated based on
practical capacity and costs are allocated based on practical capacity and (b) the rate is
calculated based on expected monthly usage and costs are allocated based on expected
monthly usage?
2. Assume the dual-rate method is used with separate cost pools for the variable and fixed
costs. Variable costs are allocated on the basis of expected monthly usage. Fixed costs are
allocated on the basis of practical capacity. What budgeted amounts will be allocated to
each manufacturing department? Why might you prefer the dual-rate method?
S.M Hasan Al Hafiz ID: 2110423
15-17 Single-rate method, budgeted versus actual costs and quantities. Chocolat Inc. is a
producer of premium chocolate based in Palo Alto. The company has a separate division
for each of its two products: dark chocolate and milk chocolate. Chocolat purchases
ingredients from Wisconsin for its dark chocolate division and from Louisiana for its milk
chocolate division. Both locations are the same distance from Chocolat’s Palo Alto plant.
Chocolat Inc. operates a fleet of trucks as a cost center that charges the divisions for
variable costs (drivers and fuel) and fixed costs (vehicle depreciation, insurance, and
registration fees) of operating the fleet. Each division is evaluated on the basis of its
operating income. For 2017, the trucking fleet had a practical capacity of 50 round-trips
between the Palo Alto plant and the two suppliers. It recorded the following information:
Required:
1. Using the single-rate method, allocate costs to the dark chocolate division and the milk
chocolate division in these three ways.
a. Calculate the budgeted rate per round-trip and allocate costs based on round-trips
budgeted for each division.
b. Calculate the budgeted rate per round-trip and allocate costs based on actual
round-trips used by each division.
c. Calculate the actual rate per round-trip and allocate costs based on actual round-
trips used by each division.
2. Describe the advantages and disadvantages of using each of the three methods in
requirement 1. Would you encourage Chocolat Inc. to use one of these methods? Explain
and indicate any assumptions you made.
S.M Hasan Al Hafiz ID: 2110423
15-18 Dual-rate method, budgeted versus actual costs and quantities (continuation of 15-
17). Chocolat Inc. decides to examine the effect of using the dual-rate method for allocating
truck costs to each round-trip. At the start of 2017, the budgeted costs were:
Variable cost per round trip $1,350
Fixed costs $47,500
The actual results for the 45 round-trips made in 2017 were:
Variable costs $58,500
Fixed costs $38,250
$96,750
Assume all other information to be the same as in Exercise 15-17.
Required:
1. Using the dual-rate method, what are the costs allocated to the dark chocolate division
and the milk chocolate division when (a) variable costs are allocated using the budgeted
rate per round-trip and actual round-trips used by each division and when (b) fixed costs
are allocated based on the budgeted rate per round-trip and round-trips budgeted for each
division?
2. From the viewpoint of the dark chocolate division, what are the effects of using the dual-
rate method rather than the single-rate method?
S.M Hasan Al Hafiz ID: 2110423
15-19 Support-department cost allocation; direct and step-down methods. Phoenix
Partners provides management consulting services to government and corporate clients.
Phoenix has two support departments—administrative services (AS) and information
systems (IS)—and two operating departments—government consulting (GOVT) and
corporate consulting (CORP). For the first quarter of 2017, Phoenix’s cost records indicate
the following:
Required:
1. Allocate the two support departments’ costs to the two operating departments using the
following methods:
a. Direct method
b. Step-down method (allocate AS first)
c. Step-down method (allocate IS first)
2. Compare and explain differences in the support-department costs allocated to each
operating department.
3. What approaches might be used to decide the sequence in which to allocate support
departments when using the step-down method?
15-20 Support-department cost allocation, reciprocal method (continuation of 15-19). Refer
to the data given in Exercise 15-19.
Required:
1. Allocate the two support departments’ costs to the two operating departments using the
reciprocal method. Use (a) linear equations and (b) repeated iterations.
2. Compare and explain differences in requirement 1 with those in requirement 1 of
Exercise 15-19. Which method do you prefer? Why?