Hannibal Steel Company has a Transport Services Department that provides trucks
ID: 2528014 • Letter: H
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 $267,100 per year, consisting of $0.17 per ton variable cost and $217,100 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 66% of the Transport Services Department’s capacity and the Southern Plant requires 34%.
During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 123,000 tons; Southern Plant, 60,800 tons. The Transport Services Department incurred $369,000 in cost during the year, of which $52,900 was variable cost and $316,100 was fixed cost.
Required:
1. How much of the $52,900 in variable cost should be charged to each plant?
2. How much of the $316,100 in fixed cost should be charged to each plant?
3. How much of the $369,000 in the Transport Services Department cost should be treated as a spending variance and not charged to the plants?
Explanation / Answer
Answer for 1)
20910
[123000 tons×$0.17]
10336
[60800tons×$0.17]
Answer for 2)
143286
[$217100×66%)
73814
[$217100×34%]
Answer for 3)
Spending variance=
$369000-($20910+$10336+$143286+$73814)
=$120654(unfavorable)
Northern plant($) Southern plant($) Variable costs allocated to each department20910
[123000 tons×$0.17]
10336
[60800tons×$0.17]
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