Question
Case study 1 Harrods department store has a new promotional program that offers a free gift-wrapping service for its customers. Harrods department stores customer service
Case study 1 Harrods department store has a new promotional program that offers a free gift-wrapping service for its customers. Harrods department stores customer service department has practical capacity to wrap 7,000 gifts at a budgeted fixed cost of $6,650 each month. The budgeted variable cost to gift wrap an item is $0.40. Although the service is free to customers, a gift-wrapping service cost allocation is made to the department where the item was purchased. The customer service department reported the following for the most recent month:
Department | Actual Number of Gifts Wrapped | Budgeted Number of Gifts Wrapped | Practical Capacity available for Gift Wrapping |
Women's Clothing | 2020 | 2470 | 2640 |
Men's Clothing | 730 | 825 | 945 |
Fragrances | 1560 | 1805 | 1970 |
Body Wash | 545 | 430 | 650 |
Hair Products | 1495 | 1120 | 795 |
Total | 6350 | 6650 | 7000 |
Required:
(1) Using the single rate method, allocate gift-wrapping costs to different departments in the following ways:
(a) Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on the budgeted use of gift-wrapping services.
(b) Calculate the budgeted rate based on the practical gift-wrapping capacity available and allocate costs based on actual usage.
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