Mannerman Products, Inc., operates an electric power plant which provides all electrical power for the company's Machining and Fabrication departments. Information on kilowatt-hours (kwh) of power usage in these departments for May follow: The costs of the electric power plant are all fixed. Budgeted fixed costs for May totaled $60,000 and are determined by peak-period requirements. Actual fixed costs for the month totaled $65,000. The Machining Department requires 60% of the peak-period capacity and the Fabrication Department requires 40%.
How much (if any) of the electric power plant's actual fixed costs of $65,000 should not be charged to the other departments?

Question

Mannerman Products, Inc., operates an electric power plant which provides all electrical power for the company's Machining and Fabrication departments. Information on kilowatt-hours (kwh) of power usage in these departments for May follow:  The costs of the electric power plant are all fixed. Budgeted fixed costs for May totaled $60,000 and are determined by peak-period requirements. Actual fixed costs for the month totaled $65,000. The Machining Department requires 60% of the peak-period capacity and the Fabrication Department requires 40%.
How much (if any) of the electric power plant's actual fixed costs of $65,000 should not be charged to the other departments?

Quizplus · Accepted Answer

Spending variance = Actual cost incurred − Charges to the operating departments
= $65,000 − $60,000 = $5,000