lomework Hannibal Steel Company has a Transport Services Dep

lomework 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 $273,700 per year, consisting of $0.21 per ton variable cost and $223,700 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 55% of the Transport Services Department\'s capacity and the Southern Plant requires 45% During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 129,000 tons; Southern Plant, 52.400 tons. The Transport Services Department incurred $362,000 in cost during the year, of which $52,400 was variable cost and $309,600 was fixed cost Required 1. How much of the $52,400 in variable cost should be charged to each plant? 2. How much of the $309,600 in fixed cost should be charged to each plant? 3. How much of the $362,000 in the Transport Services Department cost should be treated as a spending variance and not charged to the plants? Complete this question by entering your answers in the tabs below. How much of the $52,400 in variable cost should be charged to each plant? cost charged to N Variable cost charged to Southern Plant Required 2>

Solution

SOLUTION

(A) Variable cost charged to Northern plant = Northern plant tons * Variable costs per unit

= 129,000 * $0.21 =$27,090

Variable cost charged to Southern plant = Southern plant tons * Variable costs per unit

= 52,400 * $0.21 =$11,004

Total = $27,090+$11,004 = $38,094

(B) Fixed cost charged to Northern plant =Fixed costs * 55%

= $223,700 * 55% = $123,035

Fixed cost charged to Southern plant =Fixed costs * 55%

= $223,700 * 45% = $100,665

(C) Part of the $362,000 in total cost will not be charged to the plants and is computed as follows-

	Variable costs ($)	Fixed costs ($)	Total ($)
Total actual costs incurred	52,400	309,600	362,000
Total charges (Calculated above)	38,094	223,700	261,794
Spending variance	14,306	85,900	100,206