Question: Karm Inc. operates a facility that contains two manufacturing facilities: Division A and Division B. Currently, Karm Inc. has practical capacity to operate for a

Karm Inc. operates a facility that contains two manufacturing facilities: Division A and Division B. Currently, Karm Inc. has practical capacity to operate for a total of 25,000 hours per year. For 2022, the company expects that Division A will operate 1,400 hours per month for a total of 16,800 while Division B will operate for 675 hours per month for a total of 8,100 hours. To operate the facility, the company has budgeted $350,000 for fixed costs and $18 per operating hour for variable costs. When allocating costs to the divisions, Karm Inc. uses practical capacity to establish the allocation rates. In June, Division A operated for a total of 1,100 hours and Division B operated for a total of 600 hours.

Required (A) If a single-rate cost allocation method is used, what amount of operating costs will be budgeted for Division A each month and for Division B each month?

(B) For the month of June, if a single-rate cost allocation method is used, what amount of cost will be allocated to Division A and to Division B? Assume actual usage is used to allocate operating costs.

(C) If a dual-rate cost allocation method is used, what amount of operating costs will be budgeted for Division A each month and for Division B each month?

(D) For the month of June, if a dual-rate cost allocation method is used, what amount of operating costs will be allocated to Division A and to Division B? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

(E) What are the advantages and disadvantages of management at Karm Inc. using the singlerate method and the dual-rate method?

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