Question

Problem 11B-5 Service Department Charges [LO11-6] 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 $ 294,000 * Actual $ 376,200

Fixed costs for salaries and other Budget $ 212,000 Actual $ 228,200 *

at $20 per machine-hour.

Data for the Forming and Assembly Departments follow:

Percentage of Peak-Period Capacity Required Machine-Hours

Forming Department at 75% Budget=10,100 Actual= 12,100

Assembly Department at 25% Budget=4,600 Actual= 3,600

Total =100% Budget =14,700 Actual =15,700

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?

Answer 1