The spending variance represents the difference between the Customer Service Department’s actual costs and what those costs should have been, given the actual level of activity. This difference is properly the responsibility of the Customer Service Department and should not be charged to the operating divisions.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement Appendix: 12B LO: 5 Level: Medium
134. Nealon Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are determined based on the number of cases produced by the operating departments during the peak period. Data appear below:
-
|
Maintenance Department
|
|
|
Budgeted variable cost
|
$7 per case
|
|
Budgeted total fixed cost
|
$600,000
|
|
Actual total variable cost
|
$432,072
|
|
Actual total fixed cost
|
$602,860
|
|
|
|
|
Paints Division
|
|
|
Percentage of peak period capacity required
|
30%
|
|
Budgeted cases
|
15,000
|
|
Actual cases
|
15,020
|
|
|
|
|
Stains Division
|
|
|
Percentage of peak period capacity required
|
70%
|
|
Budgeted cases
|
45,000
|
|
Actual cases
|
44,990
|
Required:
Prepare a report showing how much of the Maintenance Department's costs should be charged to each of the operating divisions at the end of the year.
How much of the actual Maintenance Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?
Ans:
The amount of cost that would be charged to each of the operating divisions at the end of the year would be as follows:
-
|
|
Paints Division
|
Stains Division
|
|
Variable cost allocation:
|
|
|
|
$7 × 15,020 orders
|
$105,140
|
|
|
$7 × 44,990 orders
|
|
$314,930
|
|
Fixed cost allocation:
|
|
|
|
30% × $600,000
|
180,000
|
|
|
70% × $600,000
|
|
420,000
|
|
Total cost charged
|
$285,140
|
$734,930
|
The uncharged costs are:
-
|
|
Variable
|
Fixed
|
|
Total actual costs incurred
|
$432,072
|
$602,860
|
|
Costs charged
|
420,070
|
600,000
|
|
Spending variance
|
$12,002
|
$2,860
|
The spending variance represents the difference between the Maintenance Department’s actual costs and what those costs should have been, given the actual level of activity. This difference is the responsibility of the Maintenance Department and should not be charged to the operating divisions.
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting; Measurement Appendix: 12B LO: 5 Level: Easy
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