Question

……. is a decentralized company with a centralized photocopying support department. This support department supports both of the company’s operating divisions: microcomputer division and peripheral division. The following budgeted information is available for the year 2019:
Fixed Cost                  $120,000
Available Capacity      3,500,000 pages
Budgeted Usage:
     Department A        1,000,000 pages
     Department B        3,000,000 pages
Variable Cost              $0.03 per page

Actual usage for the year was as follows:
Department A 1,500,000 pages
Department B 2,000,000 pages

The company seeks to allocate the costs of the computer support department to the two operating divisions for the purposes of performance evaluation after year end. For this purpose, the budgeted numbers above represent the long-term normal average usage.

1) The company wishes to use a single-rate allocation method
a) Determine the charge rate for photocopy department services.
b) Determine the amount of support-department cost that would be charged to each operating division for 2019. That is, compute the amount of support-department costs that each user division would be held accountable for.

2) NOW ASSUME that they choose to distribute these costs using a dual-rate allocation method:
a) Determine the charge rates for photocopy department services.
b) Determine the amount of support-department cost that would be charged to each operating division for 2019. That is, compute the amount of support-department costs that each user division would be held accountable for.

Answer 1

		1.)
	a.)	CALCULATION OF TOTAL COST & SINGLE RATE FOR COST ALLOCATION
		Particulars	Details	Amount
		Variable Cost	=3500000*0.03	$       1,05,000
		Fixed Cost		$       1,20,000
		TOTAL COST		$       2,25,000
		Pages		3500000
		SINGLE RATE	=Total Cost/Pages	$           0.0643
	b.)	AMOUNT OF SUPPORT DEPARTMENT COST ALLOCATION
		Particulars	Details	Amount
		DEP A	=1500000*0.0643	$           96,400
		DEP B	=2000000*0.0643	$       1,28,600
		TOTAL		$       2,25,000
		2.)
	a.)	CALCULATION OF CHARGE RATE USING DUAL RATE ALLOCATION
		Particulars		Amount
		Fixed Cost		$ 1,20,000
		Pages		3500000
		Fixed Cost Allocation Rate		0.0343
		Variable Cost Allocation Rate		0.0300
	b.)	AMOUNT OF SUPPORT DEPARTMENT COST ALLOCATION
		Particulars	Details	Amount
		DEP A	=1500000*(0.0343+0.03)	$           96,429
		DEP B	=2000000*(0.0343+0.03)	$       1,28,571
		TOTAL		$       2,25,000