Sharp Motor Company has two operating divisions-an Auto Division and a Truck Div

Question

Sharp Motor Company has two operating divisions-an Auto Division and a Truck Division. The company has a cafeteria that serves the employees of both divisions. The costs of operating the cafeteria are budgeted at $79,000 per month plus $0.50 per meal served. The company pays all the cost of the meals. The fixed costs of the cafeteria are determined by peak-period requirements. The Auto Division is responsible for 68% of the peak-period requirements, and the Truck Division is responsible for the other 32%. For June, the Auto Division estimated it would need 91,000 meals served, and the Truck Division estimated it would need 61,000 meals served. However, due to unexpected layoffs of employees during the month, only 61,000 meals were served to the Auto Division. Another 61,000 meals were served to the Truck Division as planned. Cost records in the cafeteria show that actual fixed costs for June totaled $88,000 and actual meal costs totaled $75,000 Required: 1. How much cafeteria cost should be charged to each division for June? 2. Assume the company follows the practice of allocating all cafeteria costs incurred each month to the divisions in proportion to the number of meals served to each division during the month. On this basis, how much cost would be allocated to each division for June? (Round your intermediate calculations to 2 decimal places.) Auto Division Division Truck 1. Total cost charged 2. Total cost allocated

Explanation / Answer

Auto division Truck divison 1 Variable cost $0.50 *61000 meals 30500 $0.50 *61000 meals 30500 Fixed costs (68%*79000) 53720 (32%*79000) 25280 Total cost charged will be 84220 55780 VC charged using budgeted rate per meal and actual meals served. And FC are charged based on budgeted fixed costs And diff in budgeted and actual ones are treated as spending variance of café. VC FC Total actual cost for month 75000 88000 Total cost charged above 61000 79000 Spending variance not allocated 14000 9000 2 Actual VC 75000 Actual FC 88000 163000 One half of total cost or 81500 would be allocated . As same no. of meals is served in each division

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