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 $200,100 per year, consisting of $0.21 per ton variable cost and $150,100 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 58% of the Transport Services Department’s capacity and the Southern Plant requires 42%.

During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 122,000 tons; Southern Plant, 64,100 tons. The Transport Services Department incurred $375,000 in cost during the year, of which $52,300 was variable cost and $322,700 was fixed cost.

Required:

1. Determine how much of the $52,300 in variable cost should be charged to each plant.

	Variable cost charged to Northern Plant   Variable cost charged to Southern Plant

2. Determine how much of the $322,700 in fixed cost should be charged to each plant.

	Fixed cost charged to Northern Plant Fixed cost charged to Southern Plant

3. How much amount out of $375,000 in the Transport Services Department cost should not be charged to the plants?

Spending variance

Answer 1

Answer
Particulars	Calculation	Amount
Variable cost charged to Northern plant	$ 0.21*1,22,000	$ 25,620
Variable cost charged to Southern plant	$ 0.21*64,100	$ 13,461
a. Total		$ 39,081
Fixed cost charged to Northern Plant	$ 1,50,100*58%	$ 87,058
Fixed cost charged to Southern Plant	$ 1,50,100*42%	$ 63,042
b. Total		$ 1,50,100
Calculation of Cost not charged in the Transport Services Department cost
a. Total cost incurred	$3,75,000
b. Total cost charged  ($39,081+$1,50,100)	$1,89,181
c. Cost not charged (a-b)	$1,85,819
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