Question: Fixed- and Variable-Cost Pools The city of Lancaster signed a lease for a photocopy machine at $3,000 per month and $.02 per copy. Operating costs for toner, paper, operator salary, and so on are all variable at $.03 per copy. Departments had projected a need for 100,000 copies a month. The city planning department predicted its usage at 36,000 copies a month. It made 42,000 copies in August.
1. Suppose one predetermined rate per copy was used to allocate all photocopy costs. What rate would be used and how much cost would be allocated to the city planning department in August?
2. Suppose fixed- and variable-cost pools were allocated separately. Specify how each pool should be allocated. Compute the cost allocated to the city planning department in August.
3. Which method, the one in number 1 or the one in number 2, do you prefer? Explain.