Question

Illumination Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year: Budgeted costs of operating the plant for 2000 to 3000 hours: Fixed operating costs per year $480,000 Variable operating costs $800 per hour Budgeted long-run usage per year: Flashlight Division 1500 hours Night Light Division 700 hours Practical capacity 3000 hours Assume that practical capacity is used to calculate the allocation rates. Actual usage for the year by the Flashlight Division was 1400 hours and by the Night Light Division was 600 hours. If a single-rate cost-allocation method is used, what amount of operating costs will be allocated to the Night Light Division

Answer 1

Allocated operating costs= $576,000

Step-by-step explanation:

First, we need to calculate the predetermined operating costs allocation rate:

Predetermined operating costs allocation rate= total estimated operating costs for the period/ total amount of allocation base

Predetermined operating costs allocation rate= (480,000 / 3,000) + 800

Predetermined operating costs allocation rate= $960 per hour

Now, we can allocate overhead to Night Light Division:

Allocated operating costs= Predetermined operating costs allocation rate* Actual amount of allocation base

Allocated operating costs= 960*600

Allocated operating costs= $576,000