Korvanis Corporation operates a Medical Services Department for its employees. C
ID: 2595548 • 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 $58 per employee. Fixed Medical Services Department costs are budgeted at $681,900 per year. Actual Medical Services Department costs for the most recent year were $106,900 for variable costs and $687,000 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 611 282 913 Actual number of employees for the most recent year 511 382 813 Long-run average number of employees 630 420 1,050Explanation / Answer
Solution:-
1.
2.
The overall spending variance of $13,052 represents costs incurred in excess of the budgeted variable cost of $58 per employee and the budgeted fixed cost of $681,900. This $13,052 in uncharged costs is the responsibility of the Medical Services Department.
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Long-Run Average Number of Employees Percentage Cutting Department 630 30% Milling Department 420 20% Assembly Department 1,050 50% Total 2,100 100%Related Questions
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