Question

Actual versus Budgeted Costs

Kumar, Inc., evaluates managers of producing departments on their ability to control costs. In addition to the costs directly traceable to their departments, each production manager is held responsible for a share of the costs of a support center, the Human Resources (HR) Department. The total costs of HR are allocated on the basis of actual direct labor hours used. The total costs of HR and the actual direct labor hours worked by each producing department are as follows:

	Year 1		Year 2
Direct labor hours worked:
Department A	24,000		26,000
Department B	36,000		26,000
Total hours	60,000		52,000
Actual HR cost	$160,000		$160,000
Budgeted HR cost	115,000	*	113,000	*

*$0.25 per direct labor hour plus $100,000.

Required:

Allocate the HR costs to each producing department for Year 1 and Year 2 using the direct method with actual direct labor hours and actual HR costs.

	Year 1	Year 2
Department A	$______	$____
Department B	$______	$_____

Copies Plus Print operates a copy business at two different locations. Copies Plus Print has one support department that is responsible for cleaning, service, and maintenance of its copying equipment. The costs of the support department are allocated to each copy center on the basis of total copies made.

During the first month, the costs of the support department were expected to be $200,000. Of this amount, $60,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $128,000 and actual fixed costs of $72,000.

Normal and actual activity (copies made) are as follows:

	Copy Center 1	Copy Center 2
Normal activity (copies)	600,000	400,000
Actual activity (copies)	500,000	440,000

For purposes of performance evaluation, fixed costs allocated to Copy Center 2 are:

a.$28,800.

b.$51,200.

c.$24,000.

d.$60,000.

Answer 1

solution: years and calculation of the allocation ratio's for the year 2 for dept K and dept B. - foomula = Disect labor hours worked for dept a Dept A + Dept B year! year2 Depta 24O00 24000+ 360DD s2600D (2600DT 600D 0.4 (aucout abo) Os 2.o 21c] 0.0 (internet tona] O-s 3600o Dept B 126000 2.600D + 24000 + 360 DO 6600 I yearl year 2 Dept A 160000Xoy 1600Doxo-s Dept B 160000x0.6 | 16000D X 0.5 1 year year-2 80000 Dept-A Dept-B GOOD | 96000 / 80000

performance evalution, fixed costs For purposes of allocated to copy center a G0 000 XuOU OOD GOD ODD+ you onu 60000 x 4000vo 1000020 240ooo = $ 24000 option ac $zuooo is correct.