A corporation has two operating divisionsan Atlantic Divisio

A corporation has two operating divisions--an Atlantic Division and a Pacific Division. The company\'s Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $44 per shipment. The Logistics Department\'s fixed costs are budgeted at $402,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.

How much Logistics Department cost should be charged to the Atlantic Division at the end of the year for performance evaluation purposes?

Percentage of Peak Period Capacity Required Actual Shipments Atlantic Division Pacific Division 25% 75% 2,660 4,970

Solution

Atlantic Division Variable cost charges: $44 per shipment * 2,660 shipments $117,040 Fixed cost charges: 25% * $402,000 $100,500 Total charges $217,540