Question

15-17 Single-rate method, budgeted versus actual costs and quantities.

Chocolat Inc. is a producer of premium chocolate based in Palo Alto. The company has a separate division for each of its two products:

dark chocolate and milk chocolate.

Chocolate purchases ingredients from Wisconsin for its dark chocolate division and from Louisiana for its milk chocolate division. Both locations are the same distance from Chocolat’s Palo Alto plant. Chocolat Inc. operates a fleet of trucks as a cost center that charges the divisions for variable costs (drivers and fuel) and fixed costs (vehicle depreciation, insurance, and registration fees) of operating the fleet. Each division is evaluated on the basis of its operating income.

For 2017, the trucking fleet had a practical capacity of 50 round-trips between the Palo Alto plant and the two suppliers. It recorded the following information.

Budgeted Actual

Cost of truck fleet $115,000 $96,750

Number of round-trips for dark chocolate divisions (Palo Alto- Wisconsin) 30 30

Number of round-trips for milk chocolate divisions (Palo Alto plant- Louisiane) 20 15

Full Alternative Text Using the single-rate method, allocate costs to the dark chocolate division and the milk chocolate division in these three ways.

Required:

a) Calculate the budgeted rate per round-trip and allocate costs based on round-trips budgeted for each division.

b) Calculate the budgeted rate per round-trip and allocate costs based on actual round-trips used by each division.

c) Calculate the actual rate per round-trip and allocate costs based on actual round-trips used by each division.

Answer 1

Solution a:

budgeted rate per round-trip = Budgeted cost / budgeted round trip = $115,000 / 50 = $2,300 per round trip

Allocated cost to dark chocolate divisions = Allocation rate * Budgeted round trip   = $2,300 * 30 = $69,000

Allocated cost to milk chocolate divisions = Allocation rate * Budgeted round trip = $2,300 * 20 = $46,000

Solution b:

budgeted rate per round-trip = Budgeted cost / budgeted round trip = $115,000 / 50 = $2,300 per round trip

Allocated cost to dark chocolate divisions = Allocation rate * Actual round trip = $2,300 * 30 = $69,000

Allocated cost to milk chocolate divisions = Allocation rate * Actual round trip = $2,300 * 15 = $34,500

Solution c:

Actual rate per round-trip = Actual cost / Actual round trip = $96,750 / 45 = $2,150 per round trip

Allocated cost to dark chocolate divisions = Allocation rate * Actual round trip = $2,150 * 30 = $64,500

Allocated cost to milk chocolate divisions = Allocation rate * Actual round trip = $2,150 * 15 = $32,250