Question

Leslie Company operates a cafeteria for the benefit of its employees. The company subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows:

	Budgeted			Actual
Variable costs*	$	704,250		$	638,350
Fixed costs	$	396,000		$	417,000

*Unrecovered cost after deducting amounts received from employees.

Costs of the cafeteria are charged to producing departments on the basis of the number of employees in these departments. Fixed costs are charged on the basis of the percentage of peak-period requirements. Data concerning the company’s producing departments follows:

	Machining			Assembly			Total
Budgeted number of employees		705			420			1,125
Actual number of employees		570			280			850
Percentage of peak-period requirements		60	%		40	%		100	%

Required:

a. Compute the dollar amount of variable and fixed costs that should be charged to each of the producing departments at the end of the year for purposes of evaluating performance.

b. Identify the amount, if any, of actual costs that should not be charged to the operating departments.

	Amounts to be charged Machining Assembly Variable cost Fixed cost

Answer 1

Leslie Company Requirement 1 Machining Assembly 356820 175280 Variable cost charges Machining : 570 employees x $626 per employee Assembly: 280 employees x $626 per employee Fixed Cost charges: Machining 60% x $396000 Assembly: 40% x $396000 237600 158400 704250 / 1125 = 626 Requirement 2 Actual Cost incurred Amount of Variable cost charged Spending Variance not charged 638350 532100 106250 Actual Fixed cost incurred Amount of Fixed cost charged Spending Variance not charged 417000 396000 21000