The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:

Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 90,000 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Large Plane Department?
A) $9,846,000
B) $9,012,500
C) $7,658,000
D) $11,587,500

Question

The Speedjet Aircraft Corporation has a central materials laboratory. The laboratory has only two users, the Large Plane Department and the Small Plane Department. The following data apply to the coming budget year:

Budgeted amounts are used to calculate the allocation rates.
Actual usage for the year by the Large Plane Department was 70,000 technician hours and by the Small Plane Department was 90,000 technician hours. If a dual-rate cost-allocation method is used, what amount of materials laboratory costs will be budgeted for the Large Plane Department?
A) $9,846,000 
B) $9,012,500 
C) $7,658,000 
D) $11,587,500

Quizplus · Accepted Answer

The fixed cost allocation rate is $34.40 ($8,600,000 / (90,000 + 160,000) while the variable rate is $75.
Budgeted materials laboratory costs for Large Plane Department = ($34.40 + $75) x 90,000 = $9,846,000

The Speedjet Aircraft Corporation Has a Central Materials Laboratory