Question

Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the companys mine to its tw
Required 1 Required 2 Required 3 How much of the $316,300 in fixed cost should be charged to each plant? Fixed cost charged t
Required 1 Required 2 Required 3 How much of the $369,000 in the Transport Services Department cost should be treated as a sp
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Answer #1

1) Calculate the amount of variable cost charged to each plant.

the variable cost charged to northern plant = Northern plant tons * Variable cost per unit

= 117000*0.15

= 17550

Variable cost charged to southern plant = southern plant tons * variable cost per unit

= 66000*0.15

= 9900

2) Calculate the amount of fixed cost charged to each plant.

Fixed cost charged to Northern plant = Fixed cost *65%

= 268600*65%

= 174,590

Fixed cost charged to southern plant = Fixed cost *35%

= 268600*35%

=94,010

3) The $369,000 in total cost should not be charged to the plants. The total variable changes to both the plants are $27,450(17550+9900). And the total fixed charged to both the plants are $268600 (174590+94010). So, the total charges to both the plants are 296050 ($27450(variable charges)+268600(fixed charges)). The total actual cost incurred is $369,000. Hence, the remaining cost of $72950 (369000-296050) is considered as spending variance.

The overall spending variance of $72950 shows that the costs incurred in excess of the budgeted $0.15 per ton variable cost and budgeted $268,600 in fixed costs. The $72,950 uncharged cost is the responsibility of the "Transport Service Department" (maintenance department).

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