Single-rate, dual-rate, and practical capacity allocation. Perfection Department Store has a new promotional program that offers a free gift-wrapping service for its customers. Perfection's customer service department has practical capacity to wrap 7,000 gifts at a budgeted fixed cost of $6,650 each month. The budgeted variable cost to gift wrap an item is $0.40. Although the service is free to customers, a gift-wrapping service cost allocation is made to the department where the item was purchased. The customer-service department reported the following for the most recent month:

Required

1. Using the single-rate method, allocate gift-wrapping costs to different departments in these three ways.

a. Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on the budgeted use (of gift-wrapping services).

b. Calculate the budgeted rate based on the budgeted number of gifts to be wrapped and allocate costs based on actual usage.

c. Calculate the budgeted rate based on the practical gift-wrapping capacity available and allocate costs based on actual usage.

2. Using the dual-rate method, compute the amount allocated to each department when (a) the fixed-cost rate is calculated using budgeted costs and the practical gift-wrapping capacity, (b) fixed costs are allocated based on budgeted usage of gift-wrapping services, and (c) variable costs are allocated using the budgeted variable-cost rate and actual usage.

3. Comment on your results in requirements 1 and 2. Discuss the advantages of the dual-ratemethod.

Transcribed Image Text:

Budgeted Number of Gifts Practical Capacity Available for Actual Number of Gifts Wrapped 2,020 to Be Wrapped 2,470 825 1,805 430 1.120 Gift-Wrapping 2,640 Department Women's face wash Men's face wash 730 1,560 545 1.495 6.350 945 1,970 Fragrances Body wash Hair products 650 _795 7.000 Total 6.650