Illumination Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:

Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1500 hours and by the Night Light Division was 800 hours. If a single-rate cost-allocation method is used, what amount of cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs.
A) $2,050,000
B) $1,850,000
C) $1,200,000
D) $1,537,500

Question

Illumination Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:

Assume that practical capacity is used to calculate the allocation rates.
Actual usage for the year by the Flashlight Division was 1500 hours and by the Night Light Division was 800 hours. If a single-rate cost-allocation method is used, what amount of cost will be allocated to the Flashlight Division? Assume actual usage is used to allocate operating costs.
A) $2,050,000 
B) $1,850,000 
C) $1,200,000 
D) $1,537,500

Quizplus · Accepted Answer

Flashlight Division cost = [(2000 / 4000) × $500,000] + (2000 × $900) = $2,050,000
($2,050,000 / 2000) × 1500 = $1,537,500

Illumination Corporation Operates One Central Plant That Has Two Divisions