Question 1 (Single-rate versus dual-rate methods for allocating support department costs) The Cincinnati power plant that services all manufacturing departments of Eastern Mountain Engineering has a budget for the coming year. This budget has been expressed in the following monthly terms: Manufacturing Department Needed at Practical Capacity Production Level (KilowattHours Average Expected Monthly Usage (Kilowatt-Hours) Loretta 13,000 10,000 Bently 21,000 9,000 Melboum 14,000 10,000 Eastmoreland 32,000 11,000 Total 80,000 40,000 The expected monthly costs for operating the power plant during the budget year are $20,000: $8,000 variable and $12,000 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?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question 1 (Single-rate versus dual-rate methods for allocating support department costs)
The Cincinnati power plant that services all manufacturing departments of Eastern Mountain
Engineering has a budget for the coming year. This budget has been expressed in the following monthly
terms:
Manufacturing
Department
Needed at Practical Capacity
Production Level (KilowattHours
Average Expected Monthly
Usage (Kilowatt-Hours)
Loretta 13,000 10,000
Bently 21,000 9,000
Melboum 14,000 10,000
Eastmoreland 32,000 11,000
Total 80,000 40,000
The expected monthly costs for operating the power plant during the budget year are $20,000: $8,000
variable and $12,000 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?
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