Purchase Solution

# Cost Allocation

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ABC Hospital laundry department cleans laboratory jackets for the housekeeping and laboratory departments. The budgeted volume of jackets was 100 for housekeeping and 200 for laboratory. Housekeeping actually used 100, but laboratory used only 150. Fixed costs for the laundry were budgeted at \$150. Variable costs were budgeted at \$1 per jacket. Actual total costs were \$400.

a) If actual costs are allocated based on budgeted volume, how much is allocated to each department?
______________ Housekeeping
______________ Laboratory

b) If actual costs are allocated based on actual volume, how much is allocated to each department?
______________ Housekeeping
______________ Laboratory

c) Is it more equitable to assign costs based on the standard cost per jacket or the actual cost per jacket?

d) If you decide to use two allocation rates, one for the fixed costs and one for the variable costs, should the fixed costs be allocated based on the budgeted or the actual volume? Should the variable costs be allocated based on the budgeted or actual volume?
______________ Fixed costs
______________ Variable costs

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