Tabarez Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below: For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year?
A) $989,002
B) $1,041,416
C) $967,920
D) $1,019,520

Question

Tabarez Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below:  For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year?
A) $989,002 
B) $1,041,416 
C) $967,920 
D) $1,019,520

Quizplus · Accepted Answer

The Maintenance Department's total variable cost is $733,680 ($0.45 × 1,630,400 cases of paint and $0.30 × 2,242,000 cases of stain). The fixed cost allocated to the Paints Division is $647,000 ($4,310,000 ÷ 6 years of expected life). The fixed cost allocated to the Stains Division is $320,920 [($2,148,000 ÷ 6) × (2,242,000 ÷ 1,630,400)]. Therefore, the total cost charged to the Stains Division is $1,054,600 ($733,680 + $320,920), and the portion of this cost incurred during the peak period is $86,680 [($647,000 + $320,920) ÷ 6]. Hence, the cost charged to the Stains Division at the end of the year is $967,920 ($733,680 + $86,680 + $147,560).

Tabarez Corporation's Maintenance Department Provides Services to the Company's Two