Question

Differentiate between the single rate method and dual-rate method of cost allocation based on the usage of resources.
[8 marks]

Answer 1

Solution. When an organization decides to operate in market for attaining general objective of profit along with social impact in society, it needs to incur cost for operation, which are to properly recorded and maintained in form of financial statements.

Single rate method encompasses use of single rate to all cost processes.It includes all costs while operating business activities from procurement of resources to finished goods under one cost pool.In single cost allocation, we multiply allocated rate to activity to compute cost object.

Whereas, in dual rate method, costs are allocated under two heads- fixed costs and variable costs. Fixed costs are the one which is incurred no matter how many units of resources are used to produce given level of output. They are incurred irrespective of level of profit or loss attained by an organization during an accounting period. Variable costs are the one which involves allocation of cost method and recording in keeping in mind the units of resources used along with their time duration(if any) while producing finished goods. For instance, labor wage rate and labor hours are multiplied to get variable amount.