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 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.