The 3 Ways

Exquisite Department Store has a new promotional program that offers a free gift-wrapping service for its customers. Exquisite's customer-service department has practical capacity to wrap 8,125 gifts at a budgeted fixed cost of $6,825 each month. The budgeted variable cost to gift wrap an item is $0.70. 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: Using the single-rate method, allocate gift-wrapping costs to different departments in these three ways. Using the dual-rate method, compute the amount allocated to each department when (a) the fixed-cost rate is calculated using budgeted costs and the practical gift-wrapping capacity, (b) fixed costs are allocated based on budgeted usage of gift-wrapping services, and (c) variable costs are allocated using the budgeted variable-cost rate and actual usage. Comment on your results in requirements 1 and 2. Discuss the advantages of the dual-rate method