Tasman Products, Ltd., 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 $ 279,300 * $ 357,090 Fixed costs for salaries and other $ 195,000 $ 209,500 *Budgeted at $19 per machine-hour. Data for the Forming and Assembly Departments follow: Percentage of Peak-Period Capacity Required Machine-Hours Budget Actual Forming Department 70% 9,500 11,500 Assembly Department 30% 5,200 4,200 Total 100% 14,700 15,700 The level of fixed costs in the Maintenance Department is determined by peak-period requirements. Required: 1. How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department? 2. How much, if any, of the actual Maintenance Department costs for the year should be treated as a spending variance and not charged to the Forming and Assembly departments?
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.
Tasman Products, Ltd., 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 | $ | 279,300 | * | $ | 357,090 |
| Fixed costs for salaries and other | $ | 195,000 | $ | 209,500 | |
*Budgeted at $19 per machine-hour.
Data for the Forming and Assembly Departments follow:
| Percentage of Peak-Period Capacity Required |
Machine-Hours | ||
| Budget | Actual | ||
| Forming Department | 70% | 9,500 | 11,500 |
| Assembly Department | 30% | 5,200 | 4,200 |
| Total | 100% | 14,700 | 15,700 |
The level of fixed costs in the Maintenance Department is determined by peak-period requirements.
Required:
1. How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department?
2. How much, if any, of the actual Maintenance Department costs for the year should be treated as a spending variance and not charged to the Forming and Assembly departments?
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