e 11-15 (Algo) Service Department Charges [LO11-4] Korvanis Corporation operates a Medical Services Department for its employees. Charges to th

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Exercise 11-15 (Algo) Service Department Charges [LO11-4]

Korvanis Corporation operates a Medical Services Department for its employees. Charges to the company’s operating departments for the variable costs of the Medical Services Department are based on the actual number of employees in each department. Charges for the fixed costs of the Medical Services Department are based on the long-run average number of employees in each operating department.

 

Variable Medical Services Department costs are budgeted at $59 per employee. Fixed Medical Services Department costs are budgeted at $653,000 per year. Actual Medical Services Department costs for the most recent year were $107,000 for variable costs and $659,000 for fixed costs. Data concerning employees in the three operating departments follow:

 

  Cutting Milling Assembly
Budgeted number of employees 618 289 920
Actual number of employees for the most recent year 518 389 820
Long-run average number of employees 900 600 1,500

 

Required:

1. Determine the Medical Services Department charges for the year to each of the operating departments—Cutting, Milling, and Assembly.

2. How much, if any, of the actual Medical Services Department costs for the year should be treated as a spending variance and not charged to the operating departments?

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