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Indulgence Inc. is a producer of premium chocolate based in Palo Alto.

The company has a separate division for each of its two products: dark chocolate and milk chocolate. Indulgence purchases ingredients from Wisconsin for its dark chocolate division and from Louisiana for its milk chocolate division. Both locations are the same distance from Indulgences Palo Alto plant. Indulgence Inc. operates a fleet of trucks as a cost center that charges the divisions for variable costs (drivers and fuel) and fixed costs (vehicle depreciation, insurance, and registration fees) of operating the fleet. Each division is evaluated on the basis of its operating income.

For 2017, the trucking fleet had a practical capacity of 75 round-trips between the Palo Alto plant and the two suppliers. It recorded the following information:

Budgeted	Actual
Costs of truck fleet	$180,000	$136,500
Number of round-trips for dark chocolate
division (Palo Alto plant - Wisconsin)	45	45
Number of round-trips for milk chocolate
division (Palo Alto plant - Louisiana)	30	25

Indulgence Inc. decides to examine the effect of using the dual-rate method for allocating truck costs to each round-trip :

At the start of

20172017,

the budgeted costs were:

Variable cost per round-trip	$1,550
Fixed costs	$63,750

The actual results for the 70 round-trips made in 2017 were:

Variable cost	$63,000
Fixed costs	73,500
	$136,500

1.

Using the dual-rate method, what are the costs allocated to the dark chocolate division and the milk chocolate division when (a) variable costs are allocated using the budgeted rate per round-trip and actual round-trips used by each division and when (b) fixed costs are allocated based on the budgeted rate per round-trip and round-trips budgeted for each division?

2.

From the viewpoint of the dark chocolate division, what are the effects of using the dual-rate method rather than the single-rate method? Total costs Rate per round-trip Costs allocated by Dark chocolate Milk chocolate Budgeted Budgeted round-trips $108,000 $72,000 Budgeted Actual round-trips used 108,000 60,000 Actual Actual round-trips used 87,750 48,750 Requirement 1. Using the dual-rate method, what are the costs allocated to the dark chocolate division and the milk chocolate division when (a) variable costs are allocated using the budgeted rate per round-trip and actual round-trips used by each division and when (b) fixed costs are allocated based on the budgeted rate per round-trip and round-trips budgeted for each division? Dark chocolate Milk chocolate Variable costs Fixed costs Total costs

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