FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company’s mine to its two steel mills—the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department total $167,300 per year, consisting of $0.19 per ton variable cost and $117,300 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 53% of the Transport Services Department’s capacity and the Southern Plant requires 47%.
During the year, the Transport Services Department actually hauled 123,000 tons of ore to the Northern Plant and 55,900 tons to the Southern Plant. The Transport Services Department incurred $377,000 in cost during the year, of which $53,100 was variable cost and $323,900 was fixed cost.
Required:
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How much of the Transport Services Department’s variable costs should be charged to each plant?
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How much of the Transport Services Department’s fixed costs should be charged to each plant?
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How much, if any, of the Transport Services Department’s actual total cost of $377,000 should be treated as a spending variance and not charged to the plants?
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