Total variable costs have a direct relationship with the activity base. It increases or decreases in approximate proportion to increase or decrease in the activity base respectively. Total fixed costs do not change with the change in activity base provided that activities are performed within the relevant range. Fixed costs are period costs such as rent, interest on loans, and depreciation. These costs have to be paid whether production occurs or not. That is why fixed costs remain the same at all levels of production. : The Medical Services Department charges the Cutting Department, Milling Department, and Assembly Department.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 15E

1.

To determine

Total variable costs have a direct relationship with the activity base. It increases or decreases in approximate proportion to increase or decrease in the activity base respectively.

Total fixed costs do not change with the change in activity base provided that activities are performed within the relevant range. Fixed costs are period costs such as rent, interest on loans, and depreciation. These costs have to be paid whether production occurs or not. That is why fixed costs remain the same at all levels of production.

:

The Medical Services Department charges the Cutting Department, Milling Department, and Assembly Department.

2.

To determine

Spending variance shows the relationship between the budgeted cost and the actual cost incurred. If the budgeted cost is more than the actual cost incurred, then it is termed a favorable spending variance and vice versa.

:

The costs that should be treated as a spending variance and not charged to the operating departments.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Exercise 11-15 (Algo) Service Department Charges [LO11-4] Korvanis Corporation operates a Medical Services Department for its employees. Charges to the company's operating departments for the variable costs of the Medical Services Department are based on the actual number of employees in each department. Charges for the fixed costs of the Medical Services Department are based on the long-run average number of employees in each operating department. ces Variable Medical Services Department costs are budgeted at $59 per employee. Fixed Medical Services Department costs are budgeted at $643,700 per year. Actual Medical Services Department costs for the most recent year were $106,000 for variable costs and $649,000 for fixed costs. Data concerning employees in the three operating departments follow: Budgeted number of employees Actual number of employees for the most recent year Long-run average number of employees. Cutting 600 500 750 Medical services department charges Cutting Milling…

Exercise 11-15 (Algo) Service Department Charges [LO11-4] Korvanis Corporation operates a Medical Services Department for its employees. Charges to the company’s operating departments for the variable costs of the Medical Services Department are based on the actual number of employees in each department. Charges for the fixed costs of the Medical Services Department are based on the long-run average number of employees in each operating department. Variable Medical Services Department costs are budgeted at $59 per employee. Fixed Medical Services Department costs are budgeted at $653,000 per year. Actual Medical Services Department costs for the most recent year were $107,000 for variable costs and $659,000 for fixed costs. Data concerning employees in the three operating departments follow: Cutting Milling Assembly Budgeted number of employees 618 289 920 Actual number of employees for the most recent year 518 389 820 Long-run average number of employees 900 600…

Problem 6. Highland Producers prices its products at full cost plus 30 percent. The company operates two support departments and two producing departments. Budgeted costs and normal activity levels are as follows: Support Departments Producing Departments А B C $240,000 6,000 40 6,400 10,800 Support Department A's costs are allocated based on square feet, and Support Department B's costs are allocated based on number of employees. Department C uses direct labor hours to assign overhead costs Overhead costs $40,000 1,000 $100,000 1,200 $180,000 2,000 Square feet Number of employees 20 30 60 10,000 6,000 Direct labor hours Machine hours to products, while Department D uses machine hours. Required: Determine the amount of costs for each producing department using the direct method of allocation а. b. Determine the amount of costs for each producing department using the sequential method of allocation Department B should be allocated first. Determine the amount of costs for each producing…