A Firm Allocates the Cost of Electricity to Its Operating

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