Question

Tasman Products, Ltd., of Australia has a Maintenance Department that services the equipment in the company’s Forming Department and Assembly Department. The cost of this servicing is charged to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below. Data for the Maintenance Department follow: Budget Actual Variable costs for lubricants $ 331,800 * $ 425,340 Fixed costs for salaries and other $ 204,000 $ 219,400 *Budgeted at $21 per machine-hour. Data for the Forming and Assembly Departments follow: Percentage of Peak-Period Capacity Required Machine-Hours Budget Actual Forming Department 75% 10,500 12,500 Assembly Department 25% 5,300 4,300 Total 100% 15,800 16,800 The level of fixed costs in the Maintenance Department is determined by peak-period requirements. Required: Management would like data to assist in comparing actual performance to planned performance in the Maintenance Department and in the other departments. 1. How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department? 2. How much, if any, of the actual Maintenance Department costs for the year should be treated as a spending variance and not charged to the Forming and Assembly departments?

Answer 1

ANSWER:-

	Forming Department	Assembly Department	Total
Variable costs
.21 per machine per hour *12,500	262,500
.25 per machine per hour *4300		107,500	370,000
Fixed costs
75%*204,000	153,000
25%*204,000		51,000	204,000
Total cost charged

Actual fixed overhead - Budgeted fixed overhead = Fixed overhead spending variance
219,400 - 204,000	15,400
Actual hours worked x (Actual overhead rate - standard overhead rate)
Variable overhead spending variance
16800*(30.12-21)	153,216
Actual cost	425,340.00
Actual hours	16,800.00
Rate per hour	30.12

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