Charley's Products Allocates Telephone Expenses Based on a Variable Rate

question 54

Multiple Choice

Charley's Products allocates telephone expenses based on a variable rate of $1 per phone call.It allocates the fixed monthly charge equally over its budgeted usage.Able Division expected to make 300 telephone calls,but actually made 350.Baker Division expected to make 300 telephone calls,but actually made 250.Actual fixed costs for the month totaled $3,000.What are the amounts allocated to the two divisions using a dual rate of allocation?

• A)Able Division = $2,259,Baker Division = $1,291
• B)Able Division = $2,209,Baker Division = $1,391
• C)Able Division = $1,850,Baker Division = $1,750
• D)Able Division = $1,800,Baker Division = $1,800

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders, calculated at the beginning of an accounting period.

Overhead Efficiency

The measurement of how effectively a company uses its overhead costs in the production of goods or services.

Predetermined Overhead Rate

This is a rate used to allocate manufacturing overhead costs to products or job orders, estimated by dividing total estimated overhead costs by an allocation base, such as direct labor hours or machine hours.

Variable Manufacturing Overhead

Costs that vary with the level of production output but are indirect in nature, such as indirect materials and utilities.