Exam 8: Service Department Charges

Budgeted fixed costs in Swasey company's Maintenance Department were $180,000; actual fixed costs in the department for the year were $186,000. The level of budgeted fixed costs in the Maintenance Department depends on peak-period requirements. The Milling Department requires one-third of the peak-period capacity and the Assembly Department requires two-thirds of peak-period capacity. -How much fixed Maintenance Department cost should be charged to the Assembly Department at the end of the year?

Service department costs should not be separated into fixed and variable costs when charging operating departments for their services.

For performance evaluation purposes, the variable costs of a service department should be charged to operating departments using:

Vancuren Corporation has two operating divisions--an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $31 per shipment. The Logistics Department's fixed costs are budgeted at $274,400 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year, actual Logistics Department variable costs totaled $215,820 and fixed costs totaled $294,690. The East Division had a total of 3,200 shipments and the West Division had a total of 3,400 shipments for the year. -How much Logistics Department cost should be allocated to the West Division at the end of the year?

For performance evaluation purposes, the lump-sum amount of fixed service department costs charged to an operating department should usually be based on either the operating department's peak-period or long-run average needs.

If a portion of the actual cost incurred by a service department is not charged to operating departments, then at the end of the period, this uncharged cost should be:

Sales dollars is generally a poor base to use in allocating service department costs.

FarWest Industrial, Inc. has a Maintenance Department that provides services to the company's two operating departments. The variable costs of the Maintenance Department are charged on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $5.00 per maintenance hour and actual variable maintenance costs were $5.75 per maintenance hour. The budgeted and actual maintenance hours for each operating department for last year appear below: Required: a. Compute the amount of variable Maintenance Department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of actual variable Maintenance Department cost that should not have been charged to the operating departments at the end of the year for performance evaluation purposes.

Manning Products, Inc., operates an electric power plant that provides all electrical power for the company's Machining and Fabrication Departments. Information on kwh of power usage in these departments for May follows: The costs of the electric power plant are all fixed. The level of budgeted fixed costs is determined by the peak-period requirements. Budgeted fixed costs for May totaled $120,000. Actual fixed costs for the month totaled $130,000. The Machining Department requires 70% of the peak-period capacity and the Fabrication Department requires 30%. -For performance evaluation purposes, how much of the electric power plant's fixed costs should be charged to the Fabrication Department at the end of the month?

Delta Company's long-run average and actual machine-hours for last year appear below: Fixed maintenance costs of the company's maintenance service department are budgeted at $60,000 per year. These fixed costs are incurred in order to support long-run average demand. How much of this cost should be charged to Department B at the end of the year?

For performance evaluation purposes, any variance between budgeted fixed costs and actual fixed costs in a service department:

Jui Corporation's Maintenance Department provides services to the company's two operating divisions--the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak-period. Data appear below: For performance evaluation purposes, how much Maintenance Department cost should be charged to the Paints Division at the end of the year?

Soland Corporation has two operating divisions--an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $46 per shipment. The Logistics Department's fixed costs are budgeted at $253,700 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year, actual Logistics Department variable costs totaled $342,000 and fixed costs totaled $273,230. The Atlantic Division had a total of 4,400 shipments and the Pacific Division had a total of 2,800 shipments for the year. For performance evaluation purposes, how much actual Logistics Department cost should NOT be charged to the operating divisions at the end of the year?

Delta Railroad has two operating divisions--Freight and Passenger. The Maintenance Department serves both divisions. Variable Maintenance Department costs are budgeted at $12 per thousand miles. The fixed Maintenance Department costs are budgeted at $800,000 per year. The level of the fixed Maintenance Department costs are determined by the peak-period requirements. Data for last year follow: During last year, the Maintenance Department actually incurred $650,000 in variable costs and $815,000 in fixed costs. -For performance evaluation purposes, how much of the fixed Maintenance Department cost should be charged to the Freight Division at the end of the year?

Henry Company has an Equipment Services department which performs all needed maintenance work on the equipment in the company's Fabrication and Assembly departments. Costs of the Equipment Services department are charged to the Fabrication and Assembly departments on the basis of direct labor-hours. Data on direct labor-hours for the most recent year follow: The company budgeted its variable maintenance costs at $16,200 for the year. Actual variable maintenance costs totaled $22,800. -For performance evaluation purposes, how much (if any) of the actual variable maintenance cost should not be allocated to the Fabrication and Assembly Departments at the end of the year?

Yacavone Corporation has two operating divisions--a Consumer Division and a Commercial Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $43 per order. The Customer Service Department's fixed costs are budgeted at $274,400 for the year. The fixed costs of the Customer Service Department are determined based on the peak-period orders. At the end of the year, actual Customer Service Department variable costs totaled $216,090 and fixed costs totaled $292,890. The Consumer Division had a total of 1,310 orders and the Commercial Division had a total of 3,590 orders for the year. For performance evaluation purposes, how much actual Customer Service Department cost should NOT be charged to the operating divisions at the end of the year?

Kirston Company operates a free cafeteria for the benefit of its employees. Budgeted and actual costs in the cafeteria for last year are given below: The variable costs of the cafeteria are charged to operating departments on the basis of the number of employees in these departments. Data concerning last year are given below: The level of budgeted fixed costs in the cafeteria is determined by the peak-period requirements. Required: a. Compute the dollar amount of the variable and fixed costs that should have been charged to each of the operating departments at the end of last year for purposes of evaluating performance. b. Identify the amount, if any, of actual cafeteria costs that should not be charged to the operating departments.

Nathan Company has an Equipment Services Department that performs all needed maintenance work on the equipment in the company's Fabrication and Assembly Departments. Costs of the equipment Services Department are charged to the Fabrication and Assembly Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow: For the year just ended, the company budgeted its variable maintenance costs at $200,000 for the year. Actual variable maintenance costs for the year totaled $275,000. -How much (if any) of the $275,000 in variable maintenance cost should not be charged to the Fabrication and Assembly Departments?

The fixed costs of service departments should be allocated to operating departments in predetermined lump-sum amounts that are determined in advance.

Manning Products, Inc., operates an electric power plant that provides all electrical power for the company's Machining and Fabrication Departments. Information on kwh of power usage in these departments for May follows: The costs of the electric power plant are all fixed. The level of budgeted fixed costs is determined by the peak-period requirements. Budgeted fixed costs for May totaled $120,000. Actual fixed costs for the month totaled $130,000. The Machining Department requires 70% of the peak-period capacity and the Fabrication Department requires 30%. -How much (if any) of the electric power plant's actual fixed costs should not be allocated to the other departments?