1) Assume that Company X has three Departments (Alpha, Beta & Gamma) and they share common costs budgeted at $1,500,000, of which $1,000,000 is fixed. Management feels that direct labor hours drive variable costs, and that square footage of factory space is a good measure of capacity, which drives fixed costs. Gamma Department is the largest of the three departments, based on capacity. Using the information given, please allocate the common costs using: a) The Dual Allocation Method b) The Stand-Alone Cost Method (using direct labor hours) c) The Incremental Cost Method Alpha

Beta Gamma Total Direct Labor Hours 25,000 15,000 10,000 50,000

Factory Square Footage 8,000 2,000 15,000 25,000

Dual Allocation Method

Variable Costs

Fixed Costs

Variable Cost Rate per DLH

Fixed Cost Rate per Sq.

Ft. Common Costs Allocated

Alpha. Beta Gamma. Total

Variable Costs

Fixed Costs

Total Costs

Stand-Alone Cost Allocation Method

Variable Costs

Fixed Costs

Cost Allocation Rate per DLH Common

Costs Allocated

Alpha Beta Gamma Total

Common Costs

Incremental Cost Allocation Method

Variable Costs

Fixed Costs

Variable Cost Rate per DLH

Common Costs Allocated

Alpha Beta Gamma Total

Variable Costs

Fixed Costs

Total Costs