Korvanis Corporation operates a Medical Services Department for its employees. C

Question

Korvanis Corporation operates a Medical Services Department for its employees. Charges to the company’s operating departments for the variable costs of the Medical Services Department are based on the actual number of employees in each department. Charges for the fixed costs of the Medical Services Department are based on the long-run average number of employees in each operating department.

Variable Medical Services Department costs are budgeted at $58 per employee. Fixed Medical Services Department costs are budgeted at $687,500 per year. Actual Medical Services Department costs for the most recent year were $106,900 for variable costs and $693,000 for fixed costs. Data concerning employees in the three operating departments follow:

Required:

1. Determine the Medical Services Department charges for the year to each of the operating departments—Cutting, Milling, and Assembly.

2. How much, if any, of the actual Medical Services Department costs for the year should not be charged to the operating departments?

Cutting Milling Assembly Budgeted number of employees 606 280 916 Actual number of employees for the most recent year 506 380 816 Long-run average number of employees 1,200 800 2,000

Explanation / Answer

1)Budgeted average long run employees = 1200+800+2000= 4000

fixed overhead rate = 687500/4000 = $ 171.875

2)Actual overhead = 106900+693000=799900

actual cost not charged to operating department = 799900-786216= 13684

cutting miling assembly total variable cost 506*58=29348 380*58=22040 816*58 = 47328 fixed cost 1200*171.875= 206250 800*171.875= 137500 2000*171.875=343750 Total 235598 159540 391078 786216

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