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 $298,500 per year, consisting of $0.16 per ton variable cost and $248,500 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 59% of the Transport Services Department’s capacity and the Southern Plant requires 41%.

During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 112,000 tons; Southern Plant, 64,300 tons. The Transport Services Department incurred $357,000 in cost during the year, of which $52,600 was variable cost and $304,400 was fixed cost.

Required:
1.	Determine how much of the $52,600 in variable cost should be charged to each plant.

2.	Determine how much of the $304,400 in fixed cost should be charged to each plant.

3.	Should any of the $357,000 in the Transport Services Department cost not be charged to the plants?

Answer 1

Answer