Hannibal Steel Company has a Transport Services Department that provides trucks

Question

Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company's mine to its two steel mills-the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department total $223,100 per year, consisting of $0.23 per ton variable cost and $307,900 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 69% of the Transport Services Department's capacity and the Southern Plant requires 31%. During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 14,000 tons; Southern Plant, 61,800 tons. The Transport Services Department incurred $360,000 in cost during the year, of which $52,100 was variable cost and $173,100 was fixed cost. Required 1. How much of the $52,100 in variable cost should be charged to each plant. 2. How much of the $173,100 in fixed cost should be charged to each plant. 3. How much amount out of $360,000 in the Transport Services Department cost should be treated as a spending variance and not charged to the plants? Complete this question by entering your answers in the tabs below. Required 1Required 2 Required 3 How much of the $52,100 in variable cost should be charged to each plant Variable cost charged to Northern Plant Variable cost charged to Southern Plant

Explanation / Answer

Ans)

1. Variable cost charged to Northern plant = $0.23 X 114000 tons = 26220

Variable cost charged to Southern plant = $0.23 X 61800 tons = 14214

2. Fixed cost charged to Northern plant = 307900 X 69% = 212451

Fixed cost charged to Southern plant = 307900 X 31% = 95449

3. $360,000 in total cost should not be charged to the plants. The total variable changes to both the plants are

$40434 ( 26220 + 14214) and the total fixed charges to both the plants are $307900 (212451 + 95449)

So the total charges to both the plants are 348334 ( 40434 + 307900)

The total actual cost incurred is $360,000.

Hence the remaining cost 11666 ( 360,000 - 348334) is considered as spending variance.

The overall spending variance of $11,666 shows that the costs incurred in excess of the budgeted $0.23 per ton variable cost and budgeted $307,900 fixed cost. The 11,666 uncharged cost is the responsibility of the Transport services department ( maintanence department)

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.