Question
The A Corporation has two types of products: the Flashlight and the Night Light. Each production division's management is compensated based on the division's operating
The A Corporation has two types of products: the Flashlight and the Night Light. Each
production division's management is compensated based on the division's operating
income. A Co. operates a maintenance department that charges the two production
divisions for variable costs and fixed costs of maintaining equipment. The following data
apply to the coming budget year:
Budgeted costs of the maintenance department
Fixed maintenance costs per year $240,000
Variable maintenance costs $8 per hour
Budgeted long-run usage per year:
Night Light Division 800 hours 12 months = 9,600 hours per year
Flashlight Division 450 hours 12 months = 5,400 hours per year
Practical capacity: 20,000 maintenance hours per year
Assume that practical capacity is used to calculate the allocation rates. Actual usage of the
Night Light Division was 700 hours and the Flashlight Division was 400 hours for the month of June.
Q:
Using the single-rate method, allocate maintenance costs to the two divisions for June and using the dual-rate method, allocate maintenance costs to the two divisions for June.
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