Chocolat Inc. decides to examine the effect of using the dual-rate method for allocating truck costs to each round trip. At the start of 2015, the budgeted costs were:

Variable cost per round trip ...................... $ 1,500

Fixed costs .......................................... 40,000

The actual results for the 45 round trips made in 2015 were:

Variable costs ..................................... $60,750

Fixed costs .......................................... 36,000

$96,750

Assume all other information to be the same as in Exercise 14-18.

In Exercise 14-18

Chocolat Inc. is a producer of premium chocolate based in Owen Sound. The company has a separate division for each of its two products: dark chocolate and milk chocolate. Chocolat purchases ingredients from Toronto for its dark chocolate division and from Barrie for its milk chocolate division. Both locations are the same distance from Chocolat's Owen Sound plant.

Chocolat Inc. operates a fleet of trucks as a cost centre that charges the divisions for variable costs (drivers and fuel) and fixed costs (vehicle amortization, insurance, and registration fees) of operating the fleet. Each division is evaluated on the basis of its operating income. For 2015, the trucking fleet had a practical capacity of 50 round trips between the Owen Sound plant and the two suppliers. It recorded the following information:

BudgetedActual

Costs of truck fleet ........................................ $115,000 .............. $96,750

Number of round trips for dark chocolate

division (Owen Sound plant-Toronto) ......................... 30 .................... 30

Number of round trips for milk chocolate

division (Owen Sound plant-Barrie) ........................... 20 .................... 15

Required

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?