Single and Dual Rates

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 Single-ratemethod—does not distinguish between
fixed and variable costs. It allocates costs in each
cost pool using the same rate per unit of a single
allocation base.
 A support department would be an example of a cost-
pool.

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15-2
 Dual-rate method—partitions the cost of each
support department into two pools, a variable-
cost pool and a fixed-cost pool, and
 allocates each pool using a different cost-
allocation base.

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15-3
 Under either method, allocation of support costs
can be based on one of the three following
scenarios:
1. Budgeted overhead rate and budgeted hours
2. Budgeted overhead rate and actual hours
3. Actual overhead rate and actual hours.
 When using either method, managers can
allocate support-department costs to operating
divisions based on either a budgeted rate or the
eventual actual cost rate.
 The latter approach is neither preferred nor
widely used; we will illustrate using budgeted
rates.

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15-4
Copyright © 2015 Pearson Education, Inc. All Rights Reserved.
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 1-Using the single-rate method, allocate gift-wrapping
costs to different departments in these three ways.
Required
o 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).

 1- Determine total cost per unit / gift wrapped based on

Budgeted number =
Total Budgeted number of gifts wrapped $6,650
Total Budgeted F/C 6,650
F/C per gift based on Budgeted volume =
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝐶 𝑊𝑟𝑎𝑝𝑝𝑒𝑑
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑔𝑖𝑓𝑡𝑠

6,650
= = $1.00
6,650
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Average Budgeted variable cost per gift =0.4
Total cost per gift wrapped = F/C per gift based on
Budgeted volume+ Average Budgeted variable cost
per gift = $1.00 + $0.4 = $1.4
# Total cost per gift wrapped = $1.4
1.a. Allocation based on budgeted usage of gift-wrapping services:
Budgeted number * total cost per gift

1.B.Allocation based on actual usage of gift-wrapping services;

actual number of gift wrapped * total cost per gift

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1.C.Calculate the budgeted rate based on the
practical gift-wrapping capacity available and
allocate costs based on actual usage
Firstly Determine total cost per gift depend on
practical capacity.
Total practical gift wrapping Capacity 7,000
Total Budgeted Fixed cost $6,650
 Fixed cost per unit based on practical capacity =
𝑇𝑜𝑡𝑎𝑙 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹/𝑐 6,650
= = $0.9 per
𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑎𝑐𝑡𝑖𝑐𝑎𝑙 𝑔𝑖𝑓𝑡𝑠 𝑤𝑟𝑎𝑝𝑝𝑖𝑛𝑔 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 7,000
gift.
 Average Budgeted V/C per unit/ gift $0.40
 Total cost per gift Wrapped = $0.95+$0.40= $1.35

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1.C. Allocation based on actual
usage of gift-wrapping services:
actual number * total cost per based on
practical Capacity

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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.
 Budgeted rate for fixed costs
𝑇𝑜𝑡𝑎𝑙 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹/𝑐 6650
𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑎𝑐𝑡𝑖𝑐𝑎𝑙 𝑔𝑖𝑓𝑡𝑠 𝑤𝑟𝑎𝑝𝑝𝑖𝑛𝑔 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦
=
7000
=$0.95per gift
 Rate variable cost =$0.40 per unit

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