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:

	Budget			Actual
Variable costs for lubricants	$	355,000	*	$	455,500
Fixed costs for salaries and other	$	217,000		$	233,700

*Budgeted at $25 per machine-hour.

Data for the Forming and Assembly Departments follow:

	Percentage of Peak-Period Capacity Required	Machine-Hours
		Budget	Actual
Forming Department	65%	9,500	11,500
Assembly Department	35%	4,700	3,700
Total	100%	14,200	15,200

The level of fixed costs in the Maintenance Department is determined by peak-period requirements.

Required:

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?

Answer 1

Requirement 1

Particulars	Forming Department	Assembly Department	Total
Variable cost
$25 per machine Hour *11500 machine Hours	287,500		287,500
$25 per machine Hour *3700 machine Hours		92,500	92,500
Fixed Cost
65% x 217000	141,050		141,050
35% x 217000		75,950	75,950
Total Cost Charged	428,550	168,450	597,000

Requirement 2

Spending variance is difference between actual and charged expense in the current scenario. Spending variance as a cost is not allocated to maintenance department as it is not his responsibility.

Particulars	Variable cost	Fixed Cost	Total
Actual Cost incurred (A)	455,500	233,700	689,200
Cost charges (B)	428,550	168,450	597,000
Spending Variance-Cost that not charged (A-B)	26,950	65,250	92,200

kindly upvote,If any doubts please mention in comment