Single-rate versus dual-rate allocation methods, support department. The power plant that services all manufacturing departments ofWest Engineering has a budget for the coming year. This budget has been expressed in the following terms on a monthly basis:

Manufacturing Departments Needed at Practical Capacity Production Level*

(Kilowatt-Hours)

Average Expected Monthly Usage

(Kilowatt-Hours)

Rockford 10,000 8,000 Peoria 20,000 9,000 Hammond 12,000 7,000 Kankakee 8,000 6,000 Totals 50,000 30,000

*This factor was the most influential in planning the size ofthe power plant.

The expected monthly costs for operating the department during the budget year are

$17,500: $7,000 variable and $10,500 fixed.

Required 1. Assume that a single cost pool is used for the power plant costs. What dollar amounts will be allocated to each manufacturing department? Use

(a) practical capacity and

(b) average expected monthly usage as the allocation bases.

2. Assume a dual-rate method; separate cost pools for the variable and fixed costs are used.

Variable costs are allocated on the basis of expected monthly usage. Fixed costs are allo¬

cated on the basis of practical capacity. What dollar amounts will be allocated to each manufacturing department? Why might you prefer the dual-rate method?