Exercise 11-4 (Algo) Service Department Charges [LO11-4] 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 $168,700 per year, consisting of $0.17 per ton variable cost and $118,700 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 57% of the Transport Services Department’s capacity and the Southern Plant requires 43%. During the year, the Transport Services Department actually hauled 116,000 tons of ore to the Northern Plant and 51,500 tons to the Southern Plant. The Transport Services Department incurred $370,000 in cost during the year, of which $53,000 was variable cost and $317,000 was fixed cost. Required: 1. How much of the Transport Services Department’s variable costs should be charged to each plant? 2. How much of the $317,000 in fixed cost should be charged to each plant? 3. How much, if any, of the Transport Services Department’s actual total cost of $370,000 should be treated as a spending variance and not charged to the plants?
Exercise 11-4 (Algo) Service Department Charges [LO11-4]
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 $168,700 per year, consisting of $0.17 per ton variable cost and $118,700 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 57% of the Transport Services Department’s capacity and the Southern Plant requires 43%.
During the year, the Transport Services Department actually hauled 116,000 tons of ore to the Northern Plant and 51,500 tons to the Southern Plant. The Transport Services Department incurred $370,000 in cost during the year, of which $53,000 was variable cost and $317,000 was fixed cost.
Required:
1. How much of the Transport Services Department’s variable costs should be charged to each plant?
2. How much of the $317,000 in fixed cost should be charged to each plant?
3. How much, if any, of the Transport Services Department’s actual total cost of $370,000 should be treated as a spending variance and not charged to the plants?
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