Jug City, Inc. has two divisions within its one central plant: Forming Division and the Kilning Division. The following data apply to the coming budget year:
Budgeted costs of operating the plant for 2,000 to 3,000 hours:
Fixed operating costs per year 250,000
Variable operating costs per year $400 per hour
Budgeted long-run usage per year:
Forming Division 2,000 hours
Kilning Division 1,000 hours
Practical capacity 4,000 hours
Assume that practical capacity is used to calculate the allocation rates. Forming Division had actual usage for the year at 1,500 hours and the Kilning Division had 800 hours.
Requirements:
a) If dual-rate allocation method is used, what amount will be allocated to the both divisions?
b) Within this scenario, how would single-rate allocation differ from dual-rate?