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Solutions Manual, Appendix 12B 67
Appendix 12B
Service Department Charges
Exercise 12B-1 (15 minutes)
1. and 2.
Northern
Plant
Southern
Plant
Total
Variable cost charges:
$0.25 per ton × 130,000 tons ...........
$ 32,500
$0.25 per ton × 50,000 tons ............
$ 12,500
$ 45,000
Fixed cost charges:
70% × $300,000 .............................
210,000
30% × $300,000 .............................
90,000
300,000
Total charges .....................................
$242,500
$102,500
$345,000
3. Part of the $364,000 in total cost will not be charged to the plants, as
follows:
Variable
Cost
Fixed
Cost
Total
Total actual cost incurred ....................
$54,000
$310,000
$364,000
Total charges (above) .........................
45,000
300,000
345,000
Spending variance ..............................
$ 9,000
$ 10,000
$ 19,000
The overall spending variance of $19,000 represents costs incurred in
excess of the budgeted $0.25 per ton variable cost and budgeted
$300,000 in fixed costs. This $19,000 in uncharged cost is the
responsibility of the Transport Services Department.
68 Managerial Accounting for Managers, 4th Edition
Exercise 12B-2 (20 minutes)
1.
Restaurants
Rick’s
Harborside
Imperial
Garden
Ginger
Wok
Total
Percentage of 2009 sales ...............................
32%
50%
18%
100%
Allocation of 2009 fixed administrative
expenses (based on the above percentages)
$640,000
$1,000,000
$360,000
$2,000,000
2.
2009 allocation (above) .................................
$640,000
$1,000,000
$360,000
$2,000,000
2008 allocation .............................................
800,000
750,000
450,000
2,000,000
Increase (decrease) in allocation ....................
$(160,000)
$ 250,000
$(90,000)
$ 0
performance.
3. Sales dollars is not ordinarily a good base for allocating fixed costs. The departments with the
greatest sales will be allocated the greatest amount of cost and the costs allocated to a department
improvement during the period.
Solutions Manual, Appendix 12B 69
Exercise 12B-3 (20 minutes)
1.
Long-Run Average
Number of Employees
Percentage
Cutting Department .......
180
30%
Milling Department ........
120
20%
Assembly Department ....
300
50%
Total .............................
600
100%
Cutting
Milling
Assembly
Variable cost charges:
$80 per employee × 150 employees .
$ 12,000
$80 per employee × 80 employees ...
$ 6,400
$80 per employee × 270 employees .
$ 21,600
Fixed cost charges:
30% × $400,000 .............................
120,000
20% × $400,000 .............................
80,000
50% × $400,000 .............................
200,000
Total charges .....................................
$132,000
$86,400
$221,600
2. Part of the total actual cost should not be charged to the operating
departments as shown below:
Variable
Cost
Fixed
Cost
Total
Total actual costs incurred ..............
$41,000
$408,000
$449,000
Total charges .................................
40,000
400,000
440,000
Spending variance ..........................
$ 1,000
$ 8,000
$ 9,000
The overall spending variance of $9,000 represents costs incurred in
excess of the budgeted variable cost of $80 per employee and the
budgeted fixed cost of $400,000. This $9,000 in uncharged costs is the
responsibility of the Medical Services Department.
70 Managerial Accounting for Managers, 4th Edition
Problem 12B-4 (45 minutes)
1.
Auto
Division
Truck
Division
Variable costs:
$3 per meal × 20,000 meals .....
$60,000
$3 per meal × 20,000 meals .....
$60,000
Fixed costs:
65% × $40,000 ........................
26,000
35% × $40,000 ........................
14,000
Total cost charged .......................
$86,000
$74,000
variance of the cafeteria:
Variable
Fixed
Total actual cost for the month .................
$128,000
$42,000
Total cost charged above ..........................
120,000
40,000
Spending variance—not allocated .............
$ 8,000
$ 2,000
2.
Actual variable cost ...............
$128,000
Actual fixed cost ....................
42,000
Total actual cost ....................
$170,000
divisions during the month.
Solutions Manual, Appendix 12B 71
Problem 12B-4 (continued)
3. This method has two major problems. First, allocating the total actual
cost of the service department to the operating departments essentially
department results in the allocation to one operating department being
affected by the actual activity in the other operating departments. For
4. Managers may understate their peak-period needs to reduce their
charges for fixed service department costs. Top management can
contractors, at market rates, to do their maintenance work during peak
periods.
72 Managerial Accounting for Managers, 4th Edition
Problem 12B-5 (20 minutes)
1.
Forming
Department
Assembly
Department
Total
Variable costs:
$0.40 per machine-hour ×
190,000 machine-hours .......
$ 76,000
$0.40 per machine-hour ×
70,000 machine-hours .........
$28,000
$104,000
Fixed costs:
70% × $150,000 ...................
105,000
30% × $150,000 ...................
45,000
150,000
Total cost charged ....................
$181,000
$73,000
$254,000
charged would be:
Variable
Cost
Fixed
Cost
Total
Actual cost incurred during the year ...
$110,000
$153,000
$263,000
Cost charged (above) ........................
104,000
150,000
254,000
Cost not charged (spending variance) .
$ 6,000
$ 3,000
$ 9,000
manager.
