Santa Fe Corporation has t company\'s IT Department services both two operating
ID: 2562650 • Letter: S
Question
Santa Fe Corporation has t company's IT Department services both two operating divisions-the Northeast Division and the Southwest Division. The The variable costs of the I'T Department are budgeted at s36 pex costs of the IT of service, The IT Department's fixed costs are budgeted at $399,600 for the year. The tited co are determined based on peak-period demand. Percentage of Peak Period Capacity Required Budgeted Hours Actual Hours 2,600 Northeast Division Southwest Division 25% 75% 5,800 20 At the end of the year, actual IT Department variable -costs tompent cosl should NOT be totaled $305,040 and fixed costs totaled $418,680. For IT Department cost should NOT be charged to the operating performance evaluation purposes, how much actual divisions at the end of A. B. C. D. E. Noe of the above S 19,080 s 28,920 $ 9,840 S 57,720Explanation / Answer
Budgeted Fixed cost of IT Dept = $399,600
Actual Fixed Cost = $418,680
Fixed cost variance = Budgeted Fixed cost - Actual Fixed cost
= $399,600 - $418680 = -$19,080
Fixed costs are not allocated on the basis of operating divisions and therefore excess fixed cost of $19,080 will not be charged to the operating divisions.
Moreover variable cost is budegeted to be $36 per hour of service to each department, therefore any excess variable cost per hour of service will also not be charged to the operating divisions.
Actual variable cost per hour of service = Total actual Variable cost / Actual hours of service
Total Variable Cost = $305,040
Actual hours of service = 2,600 + 5,600 = 8,200 hours
Actual variable cost per hour of service = $305,040 / 8,200 hours = $37.2 per hour of service.
Excess variable cost charged = $37.2 - $36 = $1.2 per hour of extra cost
Variable cost not to be charged to operating departments = Excess variable cost per hour x Actual hours of service provided
= $1.2 x 8,200 = $9,840
Total IT department cost not to be charged from Operating Divisions = Fixed Cost + Variable Cost
= $19,080 + $9,840 = $28,920
Therefore Correct answer is B.
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