A Firm Allocates the Cost of Electricity to Its Operating

question 101

Multiple Choice

A firm allocates the cost of electricity to its operating departments based upon the number of electrical outlets in each department. The actual cost for electricity is $20,000 per period plus $0.02 per kilowatt-hour (KWH) . The $20,000 is related to the amount of capacity needed, and capacity is reasonably estimated by the number of outlets. The firm has a total of 1,000 outlets and typically uses 700,000 KWH per period. Department W has 25 outlets and typically uses 15,000 KWH per period.
If the firm switches from a single allocation rate based upon capacity to dual rates based upon capacity and actual use, Department W's cost will:

• A) Increase by $121.43
• B) Increase by $3421.50
• C) Decrease by $50.00
• D) Decrease by $121.43

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Definitions:

Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Invest

The act of allocating resources, usually monetary, in the expectation of generating an income or profit.

Annual Return

The percentage change in an investment's value over a one-year period, including dividends or interest.

Education Fund

A savings or investment account set up for the purpose of paying for educational expenses.