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 $255,000 per year, consisting of $0.21 per ton variable cost and $205,000 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 65% of the Transport Services Department’s capacity and the Southern Plant requires 35%.

During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 110,000 tons; Southern Plant, 56,400 tons. The Transport Services Department incurred $373,000 in cost during the year, of which $52,200 was variable cost and $320,800 was fixed cost.

Required:
1.	Determine how much of the $52,200 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 $320,800 in fixed cost should be charged to each plant.
	Fixed cost charged to Northern Plant

Fixed cost charged to Southern Plant      

3.	Should any of the $373,000 in the Transport Services Department cost not be charged to the plants?
	Unallocated Cost

      

Answer 1

Answer

1.

Variable cost should be charged to each plant.

Variable cost charged to Northern plant =$0.21*110000 tons =$23100

Variable cost charged to Southern plant =$0.21*56400 tons =$11844

Total Variable cost charged                  =$34944

2.

Fixed cost should be charged to each plant.

Fixed cost charged to Northern Plant =$205000*65% =$133250

Fixed cost charged to Southern Plant =$205000*35% =$71750

Total Fixed cost charged                                             =$205000

3.

If $373,000 in the Transport Services Department cost not be charged to the plants:

Unallocated Cost:

Total cost incurred(52200+320800)                   =$373000

Less: Total Variable cost charged                 =($34944)

Less: Total Fixed cost charged                      =($205000)                          

Cost not to be charged                                 =$133056