Tasman Products, Limited, of Australia has a Maintenance Department that services the equipment in the company’s Forming Department and Assembly Department. The cost of this servicing is charged to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below.
Tasman Products, Limited, of Australia has a Maintenance Department that services the equipment in the company’s Forming Department and Assembly Department. The cost of this servicing is charged to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below.
Data for the Maintenance Department follow:
| Budget | Actual | |
|---|---|---|
| Variable costs for lubricants | $ 96,000* | $ 110,000 |
| Fixed costs for salaries and other | $ 150,000 | $ 153,000 |
*Budgeted at $0.40 per machine-hour.
Data for the Forming and Assembly Departments follow:
| Percentage of Peak-Period Capacity Required | Machine-Hours | ||
|---|---|---|---|
| Budget | Actual | ||
| Forming Department | 70% | 160,000 | 190,000 |
| Assembly Department | 30% | 80,000 | 70,000 |
| Total | 100% | 240,000 | 260,000 |
The level of fixed costs in the Maintenance Department is determined by peak-period requirements.
Required:
Using the above data, describe the allocation of the Maintenance Department’s variable lubricant costs to the Forming and Assembly Departments.
1.Which of the following statements is true with respect to the Maintenance Department?
2. Which of the following statements is true with respect to the Maintenance Department?
3. Which of the following statements is true?
-
The Maintenance Department’s spending vaiance with respect to variable costs for lubricants was $14,000.
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The Maintenance Department’s spending vaiance with respect to variable costs for lubricants was $8,000.
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The Maintenance Department’s spending vaiance with respect to variable costs for lubricants was $6,000.
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The Maintenance Department’s spending vaiance with respect to variable costs for lubricants was $16,000.
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