Question 2 The Chicago power plant that services all manufacturing departments of MidWest Engineering has a budget for the coming year. This budget has been expressed in the following monthly terms: Manufacturing Department Needed at Practical Capacity Average Expected Monthly Production Level (Kilowatt- Usage (Kilowatt-Hours) Hours Rockford 10,000 8,000 Peoria 20,000 9,000 Hammond 12,000 7,000 Kankakee 8,000 6,000 Total 50,000 | 30,000 The expected monthly costs for operating the power plant during the budget year are $15,000: $6,000 variable and $9,000 fixed. Required: 1. Assume that a single cost pool is used for the power plant costs. What budgeted amounts will be allocated to each manufacturing department if: (a) the rate is calculated based on practical capacity and costs are allocated based on practical capacity, and (b) the rate is calculated based on expected monthly usage and costs are allocated based on expected monthly usage? 2. Assume the dual-rate method is used with separate cost pools for the variable and fixed costs. Variable costs are allocated on the basis of expected monthly usage. Fixed costs are allocated on the basis of practical capacity. (a) What budgeted amounts will be allocated to each manufacturing department? (b) Why might you prefer the dual-rate method?

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 7CE: Refer to Cornerstone Exercise 8.6. Required: 1. Calculate the total budgeted cost of units produced...