“A given cost allocation may be performed for one or more purposes.” List Chapter 15 The rates used in Exhibit 15-2 were combined and not predetermined. That is, no distinction was made between variable and fixed costs, and the single combined unit rate was computed after the fact—after the actual hours used were tallied.

In contrast, a flexible budget was used in this recommended alternative analysis. Note that the charges to Department 1 do not depend on how much service is being consumed by Department 2. The $4,400 charge to Department 1 depends solely on the 5,000 hours consumed by Department 1, whereas in Exhibit 15-2, Department 1’s charges went up from ‘$5,000 to $5,750 solely because of a decrease in usage by Department 2.

. In Exhibit 15-2, costs would go up by 10 percent for both Departments | and 2.

Under the alternative method, the extra $1,000 would not be reallocated. The amount would remain charged to the service department as a $1,000 variance to be explained by the manager who had the most direct influence over such cost incurrence.

at least three purposes.