Any difference between the budgeted and actual variable cost per machine-hour or

Question

Any difference between the budgeted and actual variable cost per machine-hour or between the budgeted and actual total fixed cost would not be charged to the other departments. The amount not charged would be:

Problem 118-4 Service Department Charges [L011-6] 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 $89,000 per month plus $0.60 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 74% of the peak- period requirements, and the Truck Division is responsible for the other 26%. For June, the Auto Division estimated it would need 84,000 meals served, and the Truck Division estimated it would need 54,000 meals served. However, due to unexpected layoffs of employees during the month, only 54,000 meals were served to the Auto Division. Another 54,000 meals were served to the Truck Division as planned. Cost records in the cafeteria show that actual fixed costs for June totaled $93,000 and actual meal costs totaled $82,800. 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

The amount not charged would be the OVERHEAD Variance that has resulted due to excess or shortage of Actual overhead over budgeted overhead.

The amount not charged would also be the amount of UNDER-APPLIED overhead (When actual overhead are less than budgeted) or OVER-APPLIED overhead (when actual overhead are more than budgeted overhead)

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