Reference no: EM131666233
Question: Dual-rate method, budgeted versus actual costs and quantities. Chocolat Inc. decides to examine the effect of using the dual-rate method for allocating truck costs to each roundtrip. At the start of 2017, the budgeted costs were:
Assume all other information to be the same as in Exercise.
1. Using the dual-rate method, what are the costs allocated to the dark chocolate division and the milk chocolate division when
(a) variable costs are allocated using the budgeted rate per round-trip and actual round-trips used by each division and when
(b) fixed costs are allocated based on the budgeted rate per round-trip and round-trips budgeted for each division?
2. From the viewpoint of the dark chocolate division, what are the effects of using the dual-rate method rather than the single-rate method?
Exercise: Single-rate method, budgeted versus actual costs and quantities. Chocolat Inc. is a producer of premium chocolate based in Palo Alto. The company has a separate division for each of its two products: dark chocolate and milk chocolate. Chocolat purchases ingredients from Wisconsin for its dark chocolate division and from Louisiana for its milk chocolate division. Both locations are the same distance from Chocolat's Palo Alto plant. Chocolat Inc. operates a fleet of trucks as a cost center that charges the divisions for variable costs (drivers and fuel) and fixed costs (vehicle depreciation, insurance, and registration fees) of operating the fleet. Each division is evaluated on the basis of its operating income. For 2017, the trucking fleet had a practical capacity of 50 round-trips between the Palo Alto plant and the two suppliers. It recorded the following information:
1. Using the single-rate method, allocate costs to the dark chocolate division and the milk chocolate division in these three ways.
a. Calculate the budgeted rate per round-trip and allocate costs based on round-trips budgeted for each division.
b. Calculate the budgeted rate per round-trip and allocate costs based on actual round-trips used by each division.
c. Calculate the actual rate per round-trip and allocate costs based on actual round-trips used by each division.
2. Describe the advantages and disadvantages of using each of the three methods in requirement 1. Would you encourage Chocolat Inc. to use one of these methods? Explain and indicate any assumptions you made.