The Fredensborg power plant that services all manufacturing departments of Fabri- Danmark AS has a budget for the coming year. This budget has been expressed in the following terms on a monthly basis:

The expected monthly costs for operating the department during the budget year are DKr 15 000: DKr 6000 variable and DKr 9000 fixed.
Required
1. Assume that a single-cost pool is used for the power plant costs. What Danish krone amounts will be allocated to each manufacturing department? Use (a) practical capacity and (b) average expected monthly usage as the allocation bases.
2. Assume a dual-rate method; separate cost pools for the variable and fixed costs are used. Variable costs are allocated on the basis of expected monthly usage. Fixed costs are allocated on the basis of practical capacity. What Danish krone amounts will be allocated to each manufacturing department? Why might you prefer the dual-rate method?

Transcribed Image Text:

Manufacturing departments Needed at practical capacity production level (kilowatt-hours Average expected monthly usage (kilowatt-hours) Roskilde Køge Nysted Ålborg Totals 10000 20000 12000 8000 50000 8000 9000 7000 6000 30000