ompany 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 Dep
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 $188,400 per year, consisting of $0.19 per ton variable cost and $138,400 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 56% of the Transport Services Department’s capacity and the Southern Plant requires 44%.
During the year, the Transport Services Department actually hauled 129,000 tons of ore to the Northern Plant and 59,800 tons to the Southern Plant. The Transport Services Department incurred $371,000 in cost during the year, of which $52,500 was variable cost and $318,500 was fixed cost.
Required:
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How much of the Transport Services Department’s variable costs should be charged to each plant?
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How much of the Transport Services Department’s fixed costs should be charged to each plant?
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How much, if any, of the Transport Services Department’s actual total cost of $371,000 should be treated as a spending variance and not charged to the plants?
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