Data table Machining Department 1,450 Assembly Department 4,050 Total 5,500 Budgeted usage of Materials Management labor-hours Actual usage of Materials Management labor-hours 950 3,650 4,600 Tim Bernstein, the new controller of Central Manufacturing Company (CMC) believes that the company should use the dual rate method of allocating overhead costs of its Materials Management Department to its Machining and Assembly Departments instead of the single rate method, which the company has used since its inception 20 years ago. Bernstein's Materials Management Department has an annual capacity of 5,750 labor-hours and a budgeted fixed cost of $253,000. The budgeted variable cost per labor-hour of the Materials Management Department is $19. Bernstein gathers the following information: Click the icon to view the information.) Read the requirements Requirement 1. Using the single-rate method, allocate Materials Management Department costs to the Machining and Assembly Departments in these three ways Start with allocating (a), then (b), and finally (C). (Round the budgeted rate per item to the nearest cent.) (a) (b) (c) Budgeted rate per item: Machining Assembly Total Requirement 2. Using the dual-rate method, compute the amount allocated to the Machining and Assembly Departments when (a) the budgeted fixed-cost rate is calculated using budgeted fixed costs and practical capacity of the Materials Management Department, (b) fixed costs are allocated based on the budgeted fixed-cost rate and budgeted usage of Materials Management Department services by the Machining and Assembly Departments, and (c) variable costs are allocated using the budgeted variable-cost rate and actual usage. (Round the rate per item to the nearest cent.) Variable Fixed Total Rate per item: Machining Assembly Total Requirement 3. Comment on your results in requirements 1 and 2. Discuss the advantages of the dual-rate method. For each of the scenarios, identify the related allocation method. Scenario Allocation method The costs of unused capacity of the Materials Management Department are not allocated to the Machining and Assembly Departments. Assuming that the budgeted labor-hours are based on honest estimates of their annual usage, this method will provide an estimate of eyes with the the excess Materials Management Department capacity (the portion of Materials Management Department costs not charged to either the Machining or Assembly Department). This method suffers from the disadvantage that fixed costs of the Materials Management Department appear as variable costs to the Machining and Assembly Departments. The Machining Department and Assembly Department know at the start of the year the price per labor-hour in the Materials Management Department. This enables them to make operating decisions knowing the rate they will have to pay for materials management. Eac Each can still Single-rate method: Budgeted rate based on budgeted usage and Allocated using actual usage control its total materials management costs by minimizing the number of Materials Management labor-hours each uses. Using the budgeted rate means that the costs of the unused capacity of the Materials Single-rate method: Budgeted rate based on budgeted usage and Allocated using budgeted usage Management Department is allocated to the Machining and Assembly Departments. The disadvantage is that fixed costs of the Materials Single-rate method: Budgeted rate based on capacity and Allocated using actual usage Management Department appear as variable costs to the Machining and Assembly Departments. Dual-rate allocation The Machining and Assembly Departments are unaffected by changes from its own budgeted usage or that of other divisions. The fixed costs of unused capacity in the Materials Management Department are not charged to the Machining and Assembly Departments. Of course, companies must ensure that managers do not systematically low-ball budgeted usage to reduce their allocations, for example by imposing penalties if managers want to use more resources than budgeted. The Machining Department and Assembly Department know at the start of the year what they will be charged in total for overhead costs. In effect, the Materials Management Department costs becomes a fixed cost for the Machining and Assembly Departments. Then, each may be motivated to over-use the Materials Management Department, knowing that their current year transportation costs will not change. Some advantages of the dual-rate method are: (Select all that apply.) A. The dual-rate method guides department managers to make decisions that benefit both the organization as a whole and each department because it signals to department managers that variable costs and fixed costs behave differently. B. Operating department managers will only use an external provider of material handling services if it costs less than the variable rate cost per hour (519 in our scenario here) charged by the Materials Management Department. The dual-rate method therefore avoids the potential conflict of interest that can arise under the single-rate method. OC. By charging the fixed costs of resources budgeted to be used by the operating departments as a lump sum, the dual-rate method succeeds in removing fixed costs from the operating department managers' consideration when making marginal decisions to outsource services. OD. Allocating fixed costs based on budgeted usage helps user departments with both short-run and long-run planning because user departments know the costs allocated to them in advance. Companies commit to infrastructure costs (such as the fixed costs of a support department) on the basis of a long-run planning horizon; budgeted usage measures the long-run demands of the user departments for support department services. E. By charging the fixed costs of resources budgeted to be used by the operating departments as a lump sum, the dual-rate method succeeds in removing variable costs from the operating department managers' consideration when making marginal decisions to outsource services. OF. Operating department managers will only use an external provider of material handling services if it costs more than the variable rate cost per hour ($44 in our scenario here) charged by the Materials Management Department. The single-rate method therefore avoids the potential conflict of interest that can arise under the dual-rate method. Data table Machining Department 1,450 Assembly Department 4,050 Total 5,500 Budgeted usage of Materials Management labor-hours Actual usage of Materials Management labor-hours 950 3,650 4,600 Tim Bernstein, the new controller of Central Manufacturing Company (CMC) believes that the company should use the dual rate method of allocating overhead costs of its Materials Management Department to its Machining and Assembly Departments instead of the single rate method, which the company has used since its inception 20 years ago. Bernstein's Materials Management Department has an annual capacity of 5,750 labor-hours and a budgeted fixed cost of $253,000. The budgeted variable cost per labor-hour of the Materials Management Department is $19. Bernstein gathers the following information: Click the icon to view the information.) Read the requirements Requirement 1. Using the single-rate method, allocate Materials Management Department costs to the Machining and Assembly Departments in these three ways Start with allocating (a), then (b), and finally (C). (Round the budgeted rate per item to the nearest cent.) (a) (b) (c) Budgeted rate per item: Machining Assembly Total Requirement 2. Using the dual-rate method, compute the amount allocated to the Machining and Assembly Departments when (a) the budgeted fixed-cost rate is calculated using budgeted fixed costs and practical capacity of the Materials Management Department, (b) fixed costs are allocated based on the budgeted fixed-cost rate and budgeted usage of Materials Management Department services by the Machining and Assembly Departments, and (c) variable costs are allocated using the budgeted variable-cost rate and actual usage. (Round the rate per item to the nearest cent.) Variable Fixed Total Rate per item: Machining Assembly Total Requirement 3. Comment on your results in requirements 1 and 2. Discuss the advantages of the dual-rate method. For each of the scenarios, identify the related allocation method. Scenario Allocation method The costs of unused capacity of the Materials Management Department are not allocated to the Machining and Assembly Departments. Assuming that the budgeted labor-hours are based on honest estimates of their annual usage, this method will provide an estimate of eyes with the the excess Materials Management Department capacity (the portion of Materials Management Department costs not charged to either the Machining or Assembly Department). This method suffers from the disadvantage that fixed costs of the Materials Management Department appear as variable costs to the Machining and Assembly Departments. The Machining Department and Assembly Department know at the start of the year the price per labor-hour in the Materials Management Department. This enables them to make operating decisions knowing the rate they will have to pay for materials management. Eac Each can still Single-rate method: Budgeted rate based on budgeted usage and Allocated using actual usage control its total materials management costs by minimizing the number of Materials Management labor-hours each uses. Using the budgeted rate means that the costs of the unused capacity of the Materials Single-rate method: Budgeted rate based on budgeted usage and Allocated using budgeted usage Management Department is allocated to the Machining and Assembly Departments. The disadvantage is that fixed costs of the Materials Single-rate method: Budgeted rate based on capacity and Allocated using actual usage Management Department appear as variable costs to the Machining and Assembly Departments. Dual-rate allocation The Machining and Assembly Departments are unaffected by changes from its own budgeted usage or that of other divisions. The fixed costs of unused capacity in the Materials Management Department are not charged to the Machining and Assembly Departments. Of course, companies must ensure that managers do not systematically low-ball budgeted usage to reduce their allocations, for example by imposing penalties if managers want to use more resources than budgeted. The Machining Department and Assembly Department know at the start of the year what they will be charged in total for overhead costs. In effect, the Materials Management Department costs becomes a fixed cost for the Machining and Assembly Departments. Then, each may be motivated to over-use the Materials Management Department, knowing that their current year transportation costs will not change. Some advantages of the dual-rate method are: (Select all that apply.) A. The dual-rate method guides department managers to make decisions that benefit both the organization as a whole and each department because it signals to department managers that variable costs and fixed costs behave differently. B. Operating department managers will only use an external provider of material handling services if it costs less than the variable rate cost per hour (519 in our scenario here) charged by the Materials Management Department. The dual-rate method therefore avoids the potential conflict of interest that can arise under the single-rate method. OC. By charging the fixed costs of resources budgeted to be used by the operating departments as a lump sum, the dual-rate method succeeds in removing fixed costs from the operating department managers' consideration when making marginal decisions to outsource services. OD. Allocating fixed costs based on budgeted usage helps user departments with both short-run and long-run planning because user departments know the costs allocated to them in advance. Companies commit to infrastructure costs (such as the fixed costs of a support department) on the basis of a long-run planning horizon; budgeted usage measures the long-run demands of the user departments for support department services. E. By charging the fixed costs of resources budgeted to be used by the operating departments as a lump sum, the dual-rate method succeeds in removing variable costs from the operating department managers' consideration when making marginal decisions to outsource services. OF. Operating department managers will only use an external provider of material handling services if it costs more than the variable rate cost per hour ($44 in our scenario here) charged by the Materials Management Department. The single-rate method therefore avoids the potential conflict of interest that can arise under the dual-rate method