Delta Railroad has two operating divisions—Freight and Passenger. The Maintenanc

Question

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 Maintenance Department's actual variable costs should be retained in that department as a spending variance?

$74,000

$0

$50,000

$60,000

$74,000

$0

$50,000

$60,000

Explanation / Answer

Budgeted expense as per actual units

Actual units is 50,000

The total budgeted expense as per actual units = 50,000 * 12 = 600,000

Actual spending = $ 650,000

So 50,000  should be retained in that department as a spending variance

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