Single-rate versus dual-rate allocation methods, support department. (20 minutes) The Fredensborg power plant that services all manufacturing departments of Fabri-Danmark, AS, has a budget for the coming year. This budget has been expressed in the following terms on a monthly basis:

The expected monthly costs for operating the department during the budget year are DKr 15,000: DKr 6,000 variable and DKr 9,000 fixed.
REQUIRED 1. Assume that a single-cost pool is used for the power plant costs. What DKr 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 allocated on the basis of practical capacity. What DKr amounts will be allocated to each manufacturing department? Why might you prefer the dual-rate method?

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MANUFACTURING DEPARTMENTS Roskilde NEEDED AT PRACTICAL CAPACITY PRODUCTION LEVEL (KILOWATT-HOURS) AVERAGE EXPECTED MONTHLY USAGE (KILOWATT-HOURS) 8,000 Kge Nysted lborg Totals 10,000 20,000 12,000 8,000 50,000 9,000 7,000 6,000 30,000 "This factor was the most influential in planning the size of the power plant.