Question

1. The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:

Budgeted costs of operating the materials laboratory for 100,000 to 200,000 technician hours per year:

Fixed costs per year $8,200,000

Variable costs $74 per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department 90,000 technician hours

Small Plane Department 110,000 technician hours

Budgeted amounts are used to calculate the allocation rates.

Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 80,000 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Small Plane Department?

a. $14,153,333

b. $9,200,000

c. $12,650,000

d. $10,293,333

Answer 1

Ans.	Option c   $12650000
	*Calculation:
	Budgeted cost for Small Plane Department = Budgeted long run usage hours * Allocation rate per hour
		110000 * 115
		12650000
	*Allocation rate per hour =   (Budgeted fixed cost + Budgeted variable cost) / Budgeted technician hours
		(8200000 + 14800000) / 200000
		23000000 / 200000
		115	per hour
	*Budgeted variable cost = Variable cost per technician hour * Budgeted technician hour
		74 * 200000
		14800000