The Carpenters Corporation has a central copying facility. The copying facility
ID: 2480868 • Letter: T
Question
The Carpenters Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget year:
Budgeted costs of operating the copying facility for 400,000 to 600,000 copies:
Practical capacity 600,000 copies
Fixed costs per year $60,000
Variable costs 3 cents (.03) per copy
Budgeted long-run usage in copies per year:
Marketing Department 120,000 copies
Operations Department 380,000 copies
Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Marketing Department was 80,000 copies and by the Operations Department was 360,000 copies.
Find the allocation to the Marketing department under the following assumptions:
Single-rate and demand-based
Single-rate and supply-based
Dual-rate and demand-based
Dual-rate and supply-based
What is the cost of unused capacity under the supply-based allocation?
Demand-Based
Supply-based
All costs
All costs
Single-rate
Fixed Costs
Variable Costs
Fixed Costs
Variable Costs
Dual-rate
Demand-Based
Supply-based
All costs
All costs
Single-rate
Fixed Costs
Variable Costs
Fixed Costs
Variable Costs
Dual-rate
Explanation / Answer
1. single rate and demand based: in the single rate method, fixed and variable costs are considered as one pool. single rate and demand based method is based on the budgeted usage.
Fixed costs = $60,000 and variable costs = $0.03 per copy. budgeted usage = 120,000+380,000 = 500,000 copies. total variable costs = variable costs per copy*total copies = 0.03*500,000 = $15,000
Total cost pool = fixed costs + variable costs = 60,000+15,000 = $75,000
Budgeted total rate per copy = $75,000/500,000 copies = $0.15 per copy.
Now, the allocation will be done on actual copies used by marketing department. actual usage = 80,000 copies. Thus, allocation to marketing department = 80,000*0.15 = $12,000
2. single rate and supply based: here the allocation is based on supply of the capacity.
capacity = 600,000 copies. Thus total of fixed cost + variable cost = 60,000+(0.03*600,000) = $78,000
per copy rate = 78,000/600,000 = $0.13 per copy
Thus allocation to marketing department = rate*actual copies = 0.13*80,000 = $10,400
3. dual rate demand based: fixed cost allocation rate = total fixed costs/budgeted demand or usage = 60,000/(120,000+380,000) = 60,000/500,000 = $0.12 per copy.
allocated fixed costs = $0.12*budgeted copies for marketing = 0.12*120,000 = $14,400
Variable costs = $0.03 per copy*actual usage = 0.03*80,000 = $2,400
Total = 14400+2400 = $16,800
4. dual rate supply based:
budgeted fixed cost rate per copy = 60,000/practical capacity = 60,000/600,000 = $0.10
Allocation of fixed costs = rate*budgeted usage = 0.10*120,000 = $12,000
variable cost allocation = 0.03*actual usage = 0.03*80,000 = 2,400
Total = 12000+2400 = $14,400
5. cost of unused capacity:
single rate method:
practical capacity - actual demand = 600,000 - (80,000+360,000) = 160,000
fixed cost rate = 60,000/600,000 = $0.10
Thus, fixed cost of unused capacity = $0.10*160,000 = $16,000
dual rate method:
practical capacity - actual demand = 600,000 - (80,000+360,000) = 160,000
fixed cost rate = 60,000/600,000 = $0.10
Thus, fixed cost of unused capacity = $0.10*160,000 = $16,000