The Eco-Garden Corporation operates one central plant that has two divisions, the Lawnmower Division and the Weedwacker Division. The following data apply to the coming budget year:
Budgeted costs of the operating the plant
for 4,000 to 8,000 hours:
Fixed operating costs per year $280,000
Variable operating costs $15 per hour
Practical capacity 7,000 hours per year
Budgeted long-run usage per year:
Lawnmower Division 325 hours × 12 months = 3,900 hours per year
Weedwacker Division 150 hours × 12 months = 1,800 hours per year
Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lawnmower Division was 350 hours and the Weedwacker Division was 200 hours for the month of June.
Required:
a. If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lawnmower Division each month? For the Weedwacker Division 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 the Lawnmower Division? To the Weedwacker Division? 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 the Lawnmower Division each month? For the Weedwacker Division each month?
d. For the month of June, if a dual-rate cost allocation method is used, what amount of cost will be allocated to the Lawnmower Division? To the Weedwacker Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.
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