Asked by Alana Fletcher on Jun 13, 2024
Verified
Macumber Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $48 per shipment. The Logistics Department's fixed costs are budgeted at $396,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. How much Logistics Department cost should be charged to the Atlantic Division at the end of the year for performance evaluation purposes?
A) $246,600
B) $216,805
C) $351,655
D) $263,770
Logistics Department
A division within a company or organization responsible for managing the movement and storage of goods, services, and information.
Variable Costs
Expenses that change in proportion to the production or sales levels, including labor and materials.
Fixed Costs
Expenses that do not change with the level of production or sales activities within a certain range or time period, like rent or salaries.
- Discern the imperative and strategies for distributing fixed and variable expenses among service departments for operational assessment.
- Analyze the financial implications of internal transfers and cost allocations on divisional performance.
Verified Answer
Variable costs for the Atlantic Division:
$48 per shipment x 3,000 shipments = $144,000
Fixed costs for the Logistics Department:
$396,000
Total cost for the Atlantic Division:
$144,000 + ($396,000/2) = $144,000 + $198,000 = $342,000
The fixed costs for the Logistics Department are split between the two divisions based on their demand. Since there are two divisions, we divide the fixed costs by two to get $198,000.
Therefore, the Logistics Department cost to charge the Atlantic Division for performance evaluation purposes is $246,600 ($342,000 - $95,400 allocated fixed cost to Atlantic Division).
Learning Objectives
- Discern the imperative and strategies for distributing fixed and variable expenses among service departments for operational assessment.
- Analyze the financial implications of internal transfers and cost allocations on divisional performance.
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