Asked by Abobakr Kamal on May 20, 2024
Verified
Fox Company has the following data concerning the machine-hours in its operating departments: Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to Department B at the end of the year for performance evaluation purposes?
A) $12,000
B) $14,400
C) $15,000
D) $18,000
Machine-hours
The total operational time of machines within a production process, utilized for cost allocation and efficiency analysis.
Maintenance Department
The division within an organization responsible for the upkeep, repair, and servicing of equipment and facilities.
Fixed Costs
Outgoings that remain invariable, regardless of operational output or sales numbers, encompassing costs like rent, employee pay, and safeguarding premiums.
- Work out the financial implications of service departments to be passed on to specific operating divisions for performance analysis purposes.
Verified Answer
Predetermined fixed maintenance cost rate = Budgeted fixed maintenance cost / Budgeted machine-hours
Predetermined fixed maintenance cost rate = $30,000 / 15,000 machine-hours
Predetermined fixed maintenance cost rate = $2 per machine-hour
Then, calculate the fixed maintenance cost that should be charged to Department B:
Fixed maintenance cost for Department B = Actual machine-hours for Department B x Predetermined fixed maintenance cost rate
Fixed maintenance cost for Department B = 6,000 machine-hours x $2 per machine-hour
Fixed maintenance cost for Department B = $12,000
Therefore, the fixed maintenance cost that should be charged to Department B is $12,000.
Learning Objectives
- Work out the financial implications of service departments to be passed on to specific operating divisions for performance analysis purposes.
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