Korvanis Corporation operates a Medical Services Department for its employees. C
ID: 2593379 • Letter: K
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 $59 per employee. Fixed Medical Services Department costs are budgeted at $617,600 per year. Actual Medical Services Department costs for the most recent year were $105,400 for variable costs and $623,000 for fixed costs. Data concerning employees in the three operating departments follow: Budgeted number of employees Actual number of employees for the most recent year Long-run average number of employees 619 519 750 292 392 500 Assembly 905 805 1,250 Required 1. Determine the Medical Services Department charges for the year to each of the operating departments-Cutting, Milling, and Assembly Cutting Milling Assembly Medical services department charges 2. How much, if any, of the actual Medical Services Department costs for the year should not be charged to the operating departments? Uncharged costExplanation / Answer
1.
Long-Run Average Number of Employees
Percentage
Cutting Department.....
750
30%
Milling Department......
500
20%
Assembly Department..
1250
50%
Total..........................
2500
100%
Cutting
Milling
Assembly
Variable cost charges:
$59 per employee × 519 employees...............................
$30621
$59 per employee × 392 employees...............................
$23128
$59 per employee × 805 employees...............................
$ 47495
Fixed cost charges:
30% × $617600..........................
185280
20% × $617600..........................
123520
50% × $617600..........................
308800
Total charges................................
$215901
$146648
$356295
2. Part of the total actual cost is not charged to the operating departments as shown below:
Variable Cost
Fixed Cost
Total
Total actual costs incurred............
$105,400
$623,000
$728400
Total charges..............................
101244
617600
718844
Spending variance.......................
$ 4156
$ 5400
$ 9556
The overall spending variance of $9566 represents costs incurred in excess of the budgeted variable cost of $59 per employee and the budgeted fixed cost of $617600. This $9566 in uncharged costs is the responsibility of the Medical Services Department.
1.
Long-Run Average Number of Employees
Percentage
Cutting Department.....
750
30%
Milling Department......
500
20%
Assembly Department..
1250
50%
Total..........................
2500
100%
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