Question

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

$8,000,000

Variable costs

$70

per technician hour

Budgeted long-run usage in hours per year:

Large Plane Department

80,000

technician hours

Small Plane Department

70,000

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 65,000 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?

		$8,433,333
		$9,633,333
		$10,575,000
		$8,633,333

Answer 1

Answer : option D, $8,633,333

Explanation :

Budgeted cost for Small Plane Department = Budgeted long run usage hours * Allocation rate per hour

Step 1: Allocation rate per hour :

Amma:
Allocation rate per hour=(Fixed cost+Variable cost)/Budgeted hours

Variable cost=Budgeted hours*Varible cost per hour

=(80,000+70,000)*70=150,000*70

=$ 10,500,000

Allocation rate per hour=(8,000,000+10,500,000)/(80,000+70,000)

=18,500,000/150,000=$ 123.33 per hour

Therefore,

Budgeted cost for Small Plane Department = Budgeted long run usage hours * Allocation rate per hour

= 70,000 × $123.33

= $8,633,333