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	$	370,000	*	$	475,000
Fixed costs for salaries and other	$	200,000		$	215,000

*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	60%	9,900	11,900
Assembly Department	40%	4,900	3,900
Total	100%	14,800	15,800

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

1.

Particular	Forming department	Assembly Department
Variable cost
11,900 hrs @ $25	$297,500
3,900 hours @ $25		$97,500
Fixed cost
200,000 * 60%	$120,000
200,000 * 40%		$80,000
TOTAL	$417,500	$177,500

2.

	Variable cost	Fixed cost	Total
Actual cost incurred during the year	475,000	215,000	690,000
Cost allocated	417,500	177,500	595,000
Spending Variance (Actual cost incurred during the year - Cost allocated)	892,500	38,000	95,000