Cost Accounting
15th Edition
ISBN: 9780133428834
Author: Horngren
Publisher: PEARSON
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Textbook Question
Chapter 15, Problem 15.27P
Single-rate, dual-rate, and practical capacity allocation. Preston Department Store has a new promotional program that offers a free gift-wrapping service for its customers. Preston’s customer-service department has practical capacity to wrap 5,000 gifts at a budgeted fixed cost of $4,950 each month. The budgeted variable cost to gift-wrap an item is $0.35. During the most recent month, the department budgeted to wrap 4,500 gifts. Although the service is free to customers, a gift-wrapping service cost allocation is made to the department where the item was purchased. The customer-service department reported the following for the most recent month:
- 1. Using the single-rate method, allocate gift-wrapping costs to different departments in these three ways:
Required
- a. Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on the budgeted use (of gift-wrapping services).
- b. Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on actual usage.
- c. Calculate the budgeted rate based on the practical gift-wrapping capacity available and allocate costs based on actual usage.
- 2. Using the dual-rate method, compute the amount allocated to each department when (a) the fixed-cost rate is calculated using budgeted fixed costs and the practical gift-wrapping capacity, (b) fixed costs are allocated based on budgeted fixed costs and budgeted usage of gift-wrapping services, and (c) variable costs are allocated using the budgeted variable-cost rate and actual usage.
- 3. Comment on your results in requirements 1 and 2. Discuss the advantages of the dual-rate method.
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Using the single-rate method, allocate gift-wrapping costs to different departments in the following way:
Q.Calculate the budgeted rate based on the practical gift-wrapping capacity available and allocate costs based on actual usage.
6. Tettleton Corporation is a medium-sized furniture manufacturer. In order to
manufacture its product, Tettleton purchases lumber and other supplies it needs in
production from selected vendors. These vendors require Tettleton to pay for one-third
of the supplies in the month of purchase; the remaining payment is due the following
month. Tettleton pays according to this policy, since late payments are assessed
additional interest charges. Assume that, based on the direct materials purchases
budget, Tettleton expects to make purchases in the following amounts during the first
quarter:
January
February.
March...
$24,000
$36,000
$21,000
In addition to these purchases. Tettleton expects to incur a total of $30,000 of other
expenses each month. These expenses are paid as they are incurred. Prepare Tettleton's
cash disbursements budget for the first quarter assuming that accounts payable related
to purchases was $28,000 on December 31st.
Provide answer
Chapter 15 Solutions
Cost Accounting
Ch. 15 - Prob. 15.1QCh. 15 - Describe how the dual-rate method is useful to...Ch. 15 - How do budgeted cost rates motivate the...Ch. 15 - Give examples of allocation bases used to allocate...Ch. 15 - Why might a manager prefer that budgeted rather...Ch. 15 - To ensure unbiased cost allocations, fixed costs...Ch. 15 - Prob. 15.7QCh. 15 - What is conceptually the most defensible method...Ch. 15 - Distinguish between two methods of allocating...Ch. 15 - Prob. 15.10Q
Ch. 15 - What is one key way to reduce cost-allocation...Ch. 15 - Describe how companies are increasingly facing...Ch. 15 - Distinguish between the stand-alone and the...Ch. 15 - Identify and discuss arguments that individual...Ch. 15 - Prob. 15.15QCh. 15 - Prob. 15.16ECh. 15 - Prob. 15.17ECh. 15 - Prob. 15.18ECh. 15 - Prob. 15.19ECh. 15 - Prob. 15.20ECh. 15 - Prob. 15.21ECh. 15 - Prob. 15.22ECh. 15 - Allocation of common costs. Evan and Brett are...Ch. 15 - Prob. 15.24ECh. 15 - Prob. 15.25ECh. 15 - Prob. 15.26ECh. 15 - Single-rate, dual-rate, and practical capacity...Ch. 15 - Prob. 15.28PCh. 15 - Prob. 15.29PCh. 15 - Prob. 15.30PCh. 15 - Prob. 15.31PCh. 15 - Prob. 15.32PCh. 15 - Prob. 15.33PCh. 15 - Prob. 15.34PCh. 15 - Prob. 15.35PCh. 15 - Prob. 15.36P
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