Question 6.2 (Total: 32 marks)

The Lawn Patrol Corporation has two divisions, the Lawnmower Division and the Landscaping Division, which both operate under one plant. The following data apply to the coming budget year:

Budgeted costs of the operating the plant for 4,000 to 8,000 hours:

Fixed operating costs per year $280,000

Variable operating costs $15 per hour

Practical capacity 7,000 hours per year

Budgeted long-run usage per year:

Lawnmower Division 325 hours 12 months = 3,900 hours per year

Landscaping Division 150 hours 12 months = 1,800 hours per year

Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lawnmower Division was 350 hours and the Landscaping Division was 200 hours for the month of June.

Required

1. If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lawnmower Division each month? For the Landscaping Division each month?
2. For the month of June, if a single-rate cost allocation method is used, what amount of cost will be allocated to the Lawnmower Division? To the Landscaping Division? Assume actual usage is used to allocate operating costs.
3. If a dual-rate cost allocation method is used, what amount of operating costs will be budgeted for the Lawnmower Division each month? For the Landscaping Division each month?
4. For the month of June, if a dual-rate cost allocation method is used, what amount of cost will be allocated to the Lawnmower Division? To the Landscaping Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.