Case #4 Karm Inc. operates a facility that contains two manufacturing facilities: Division A and Division B. Currently, Karm Inc. has practical capacity to operate for a total of 25,000 hours per year. For 2022, the company expects that Division A will operate 1,400 hours per month for a total of 16,800 while Division B will operate for 675 hours per month for a total of 8,100 hours. To operate the facility, the company has budgeted $350,000 for fixed costs and $18 per operating hour for variable costs. When allocating costs to the divisions, Karm Inc. uses practical capacity to establish the allocation rates. In June, Division A operated for a total of 1,100 hours and Division B operated for a total of 600 hours. Required (A) If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for Division A each month and for Division B 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 Division A and to Division B? 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 Division A each month and for Division B each month? (D) For the month of June, if a dual-rate cost allocation method is used, what amount of operating costs will be allocated to Division A and to Division B? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs. (E) What are the advantages and disadvantages of management at Karm Inc. using the single- rate method and the dual-rate method?
Case #4 Karm Inc. operates a facility that contains two manufacturing facilities: Division A and Division B. Currently, Karm Inc. has practical capacity to operate for a total of 25,000 hours per year. For 2022, the company expects that Division A will operate 1,400 hours per month for a total of 16,800 while Division B will operate for 675 hours per month for a total of 8,100 hours. To operate the facility, the company has budgeted $350,000 for fixed costs and $18 per operating hour for variable costs. When allocating costs to the divisions, Karm Inc. uses practical capacity to establish the allocation rates. In June, Division A operated for a total of 1,100 hours and Division B operated for a total of 600 hours. Required (A) If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for Division A each month and for Division B 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 Division A and to Division B? 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 Division A each month and for Division B each month? (D) For the month of June, if a dual-rate cost allocation method is used, what amount of operating costs will be allocated to Division A and to Division B? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs. (E) What are the advantages and disadvantages of management at Karm Inc. using the single- rate method and the dual-rate method?
Chapter1: Financial Statements And Business Decisions
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Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Case #4
Karm Inc. operates a facility that contains two manufacturing facilities: Division A and Division B.
Currently, Karm Inc. has practical capacity to operate for a total of 25,000 hours per year. For
2022, the company expects that Division A will operate 1,400 hours per month for a total of
16,800 while Division B will operate for 675 hours per month for a total of 8,100 hours. To operate
the facility, the company has budgeted $350,000 for fixed costs and $18 per operating hour for
variable costs.
When allocating costs to the divisions, Karm Inc. uses practical capacity to establish the allocation
rates. In June, Division A operated for a total of 1,100 hours and Division B operated for a total
of 600 hours.
Required
(A) If a single-rate cost allocation method is used, what amount of operating costs will be
budgeted for Division A each month and for Division B 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 Division A and to Division B? 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 Division A each month and for Division B each month?
(D) For the month of June, if a dual-rate cost allocation method is used, what amount of
operating costs will be allocated to Division A and to Division B? Assume budgeted usage is
used to allocate fixed operating costs and actual usage is used to allocate variable operating
costs.
(E) What are the advantages and disadvantages of management at Karm Inc. using the single-
rate method and the dual-rate method?
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