Hannibal Steel Company has a Transport Services Department that provides trucks

Question

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 $190,400 per year, consisting of $0.15 per ton variable cost and $140,400 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 55% of the Transport Services Department's capacity and the Southern Plant requires 45%. During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 118,000 tons; Southen Plant, 67,300 tons. The Transport Services Department incurred $360,000 in cost during the year, of which $53,700 was variable cost and $306,300 was fixed cost. Required 1. Determine how much of the $53,700 in variable cost should be charged to each plant. Variable cost charged to Northern Plant Variable cost charged to Southern Plant 2. Determine how much of the $306,300 in fixed cost should be charged to each plant. Fixed cost charged to Northern Plant Fixed cost charged to Southern Plant 3. Should any of the $360,000 in the Transport Services Department cost not be charged to the plants? nallocated cost

Explanation / Answer

Answer for 1)

17700

(118000tons×$0.15)

10095

(67300tons×$0.15)

Answer for 2)

Fixed costs charged to Northern region

[$140400×55%]

Fixed costs allocated to southern region

[$140400×45%]

Answer for 3)

Unallocated costs

[$360000-$17700-$10095-$77220-$63180]

($) Variable costs charged to Northern plant

17700

(118000tons×$0.15)

Variable costs charged to southern plant

10095

(67300tons×$0.15)

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