Chapter 11.B, Problem 1E

EXERCISE 11B-1 Service Department Charges L011-6

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 $350_,000 per year, consisting of $0.25 per ton variable cost and $300,000 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 70% of the Transport Services Department's capacity and the Southern Plant requires 30%.
During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 130,000 tons; Southern Plant, 50,000 tons. The Transport Services Department incurred $364,000 in cost during the year, of which $54,000 was variable cost and $310,000 was fixed cost.

Required:

1. How much of the $54,000 in variable cost should be charged to each plant.
2. How much of the $310,000 in fixed cost should be charged to each plant.
3. Should any of the $364,000 in the Transport Services Department cost be treated as a spending variance and not charged to the plants? Explain.