Question 2 The Chicago power plant that services all manufacturing departments of MidWest Engineering has a budget for the coming year. This budget has been expressed in the following monthly terms: Manufacturing Department Needed at Practical Capacity Average Expected Monthly Production Level (Kilowatt- Usage (Kilowatt-Hours) Hours Rockford 10,000 8,000 Peoria 20,000 9,000 Hammond 12,000 7,000 Kankakee 8,000 6,000 Total 50,000 | 30,000 The expected monthly costs for operating the power plant during the budget year are $15,000: $6,000 variable and $9,000 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. (a) What budgeted amounts will be allocated to each manufacturing department? (b) Why might you prefer the dual-rate method?
Question 2 The Chicago power plant that services all manufacturing departments of MidWest Engineering has a budget for the coming year. This budget has been expressed in the following monthly terms: Manufacturing Department Needed at Practical Capacity Average Expected Monthly Production Level (Kilowatt- Usage (Kilowatt-Hours) Hours Rockford 10,000 8,000 Peoria 20,000 9,000 Hammond 12,000 7,000 Kankakee 8,000 6,000 Total 50,000 | 30,000 The expected monthly costs for operating the power plant during the budget year are $15,000: $6,000 variable and $9,000 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. (a) What budgeted amounts will be allocated to each manufacturing department? (b) Why might you prefer the dual-rate method?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 2
The Chicago power plant that services all manufacturing departments of MidWest
Engineering has a budget for the coming year. This budget has been expressed in the
following monthly terms:
Manufacturing
Department
Needed at Practical Capacity Average Expected Monthly
Production Level (Kilowatt- Usage (Kilowatt-Hours)
Hours
Rockford
10,000
8,000
Peoria
20,000
9,000
Hammond
12,000
7,000
Kankakee
8,000
6,000
Total
50,000
| 30,000
The expected monthly costs for operating the power plant during the budget year are $15,000:
$6,000 variable and $9,000 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.
(a) What budgeted amounts will be allocated to each manufacturing department?
(b) Why might you prefer the dual-rate method?
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