Question

Tasman Products, Ltd., of Australia has a Maintenance Department that services the equipment in the company’s Forming Department and Assembly Department. The cost of this servicing is charged to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below.

Data for the Maintenance Department follow:

Check my work 3 Problem 11B-5 Service Department Charges [L011-6] Tasman Products, Ltd., of Australla has a Maintenance Department that services the equipment in the company's Forming Department and Assembly Department. The cost of this servicing is charged to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below. 10 points Data for the Maintenance Department follow eBook Budget $279,300 $190,000 Actual $357,090 $204,000 Variable costs for lubricants Fixed costs for salaries and other Print Budgeted at $19 per machine-hour Data for the Forming and Assembly Departments follow: References Рercentage of Peak-Period Machine-Hours Capacity Required 668 Budget 9,600 5,100 Actual 11,600 Forming Department Assembly Department 34% 4,100 15,700 1008 14,700 Total The level of fixed costs in the Maintenance Department is determined by peak-period requirements. Required Management would like data to assist in comparing actual performance to planned performance in the Maintenance Department and in the other departments. 1. How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department? 2. How much, if any, of the actual Maintenance Department costs for the year should be treated as a spending variance and not charged to the Forming and Assembly departments?

1. How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department?

	Forming Department Assembly Department Total cost charged

2. How much, if any, of the actual Maintenance Department costs for the year should be treated as a spending variance and not charged to the Forming and Assembly departments?

	Spending variance

Answer 1

Tasman Products, Ltd., Beginning-of-year allocations of variable costs are computed by multiplying the budgeted rate by the budgeted level of activity. Fixed costs are allocated in lump-sum amounts based on the peak-period needs of the using departments. The computations are: Assembly Forming Total Department Department Variable costs: $19 per machine-hour x 9,600 machine-hours $19 per machine-hour x 5,100 machine-hours 182400 279300 96900 Fixed costs: 66% x $190,000 34% x $190,000 125400 64600 190000 Total cost allocated 469300 307800 161500 End-of-year allocations of variable costs are computed by multiplying the budgeted rate by the actual level of activity. Fixed costs are again allocated in predetermined lump-sum amounts based on budgeted costs. The computations are: Assembly Forming Total Department Department Variable costs: $19 per machine-hour x 11,600 machine-hours $19 per machine-hour x 4,100 machine-hours 220400 77900 298300 Fixed costs: 66% x $190,000 125400 34% x $190,000 64600 190000 Total cost allocated 345800 142500 488300 Any difference between the budgeted and actual variable cost per machine-hour or between the budgeted and actual total fixed cost would not be allocated to the other departments. The amount not allocated would be: Variable Fixed Total Cost Cost Actual cost incurred during the year 357090 204000 561090 Cost allocated (above) 488300 298300 190000 Cost not allocated (spending variance) 58790 14000 72790 The costs not allocated are spending variances of the Maintenance Department and are the responsibility of the Maintenance Department's manager.