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 $204,700 per year, consisting of $0.19 per ton variable cost and $154,700 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, 111,000 tons, Southern Plant, 55,800 tons. The Transport Services Department incurred $368,000 in cost during the year, of which $52,900 was variable cost and $315,100 was fixed cost. Required: 1. How much of the $52,900 in variable cost should be charged to each plant? 2. How much of the $315,100 in fixed cost should be charged to each plant? 3. How much of the $368,000 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 1 Required 2 Required 3 How much of the $52,900 in variable cost should be charged to each plant? Variable cost charged to Northern Plant Variable cost charged to Southern Plant < Required 1 Required 2 >

Answer 1

Hannibal Steel Company Requirement 1 & 2 Northern Southern Plant Plant Total 21090 10602 31692 Variable cost charges: $0.19 per ton x 111,000 tons $0.19 per ton x 55,800 tons Fixed cost charges: 69% $154,700 31% x $154,700 Total charges 106743 47957 154700 58559186392 127833 Requirement 3 Part of the $368,000 in total cost will not be charged to the plants, as follows: Variable Fixed Cost Cost Total Total actual cost incurred 52900 315100 368000 Total charges (above) 31692 154700186392 Spending variance 21208 160400 181608 The overall spending variance of $181,608 represents costs incurred in excess of the budgeted $0.19 per ton variable cost and budgeted $154,700 in fixed costs. This $181,608 in uncharged cost is the responsibility of the Transport Services Department.