Darren Corporation\'s Maintenance Department provides services to the company\'s

Question

Darren Corporation's Maintenance Department provides services to the company's two operating divisions — the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:
  

For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year?

Maintenance Department: Budgeted variable cost $ 2 per case Budgeted total fixed cost $ 845,000 Paints Division: Percentage of peak period capacity required 25% Actual cases 26,000 Stains Division: Percentage of peak period capacity required 75% Actual cases 69,000

Explanation / Answer

Answer:-Maintenance Department cost should be charged to the Paints Division at the end of the year are as follows:-

=(Budgeted variable cost per case*Actual cases)+(Budgeted fixed cost*25% of peak period capacity required

=($2 per case*26000 cases)+($845000*25%)

=$52000+$169000

=$221000

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