Total Body Inc. has a new promotional program that offers a free gift-wrapping service for its customers. Total's customer-service division has practical capacity to wrap 7,500 gifts at a budgeted fixed cost of $6,750 each month. The budgeted variable cost to gift wrap an item is $0.50. Although the service is free to customers, a gift-wrapping service cost allocation is made to the division where the item was purchased. The customer-service division reported the following for the most recent month:

Required
1. Using the single-rate method, allocate gift-wrapping costs to different divisions 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 division 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-rate method.

Actual Number of Gifts Budgeted Number of Gifts to be Wrapped 2475 Practical Capacity Available for Gift-Wrapping Department Wrapped Women's face wash Men's face wash Fragrances Body wash Hair products Total 1,575 656 1,050 6,000 6,750 7,500