A company has a Trucking Services Department that provides transportation to haul a rare mineral from the company's mine to its two mills-the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department consists of $0.32 per ton variable cost and $355,000 of fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 70% of the Trucking Services Department's capacity and the Southern Plant requires 30%. During the year, the Trucking Services Department actually hauled 120,000 tons of mineral to the Northern Plant and 60,000 tons to the Southern Plant. The Trucking Services Department incurred $384,000 in cost during the year, of which $54,000 was variable cost and $330,000 was fixed cost. How much of the Trucking Services Department's variable costs should be charged to the Northern plant? O $36,000 O $38,400 O $57,600 O None of the listed answers O $28,800 How much of the Trucking Services Department's fixed costs should be charged te the Southern plant? O $106,500 O $118,333 O $177,500 O None of the listed answers O $248,500
A company has a Trucking Services Department that provides transportation to haul a rare mineral from the company's mine to its two mills-the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department consists of $0.32 per ton variable cost and $355,000 of fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 70% of the Trucking Services Department's capacity and the Southern Plant requires 30%. During the year, the Trucking Services Department actually hauled 120,000 tons of mineral to the Northern Plant and 60,000 tons to the Southern Plant. The Trucking Services Department incurred $384,000 in cost during the year, of which $54,000 was variable cost and $330,000 was fixed cost. How much of the Trucking Services Department's variable costs should be charged to the Northern plant? O $36,000 O $38,400 O $57,600 O None of the listed answers O $28,800 How much of the Trucking Services Department's fixed costs should be charged te the Southern plant? O $106,500 O $118,333 O $177,500 O None of the listed answers O $248,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:**Trucking Services Department Allocation Problem**
A company has a Trucking Services Department that provides transportation to haul a rare mineral from the company’s mine to its two mills—the Northern Plant and the Southern Plant. The budgeted costs for the Transport Services Department consist of $0.32 per ton variable cost and $355,000 of fixed cost. The level of fixed cost is determined by peak-period requirements.
During the peak period, the Northern Plant requires 70% of the Trucking Services Department’s capacity and the Southern Plant requires 30%. During the year, the Trucking Services Department actually hauled 120,000 tons of mineral to the Northern Plant and 60,000 tons to the Southern Plant. The Trucking Services Department incurred $384,000 in cost during the year, of which $54,000 was variable cost and $330,000 was fixed cost.
**Questions:**
1. **How much of the Trucking Services Department’s variable costs should be charged to the Northern plant?**
- $36,000
- $38,400
- $57,600
- None of the listed answers
- $28,800
2. **How much of the Trucking Services Department’s fixed costs should be charged to the Southern plant?**
- $106,500
- $118,333
- $177,500
- None of the listed answers
- $248,500
**Explanation:**
To allocate the costs correctly, consider the proportion of capacity each plant requires and the total hauled. Variable costs are calculated based on the actual tons hauled, while fixed costs are distributed according to the peak demand capacity.
Please refer to this framework when solving similar allocation problems on educational platforms.
Expert Solution
Step 1
Variable costs charged to Northern plant = Tonnes of ore hauled to Northern department x $0.29
= 120000 tonnes x $0.32
= $38,400
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