Ghia Manufacturing Corporation charges its Maintenance Department's service costs to two operating departments, Fabrication and Assembly. Charges are made on the basis of machine-hours. Information pertaining to machine-hours for the year follows: The following costs pertain to the Maintenance Department:
For performance evaluation purposes, how much of the Maintenance Department's variable cost should be charged to the Fabrication Department at year-end?

Question

Ghia Manufacturing Corporation charges its Maintenance Department's service costs to two operating departments, Fabrication and Assembly. Charges are made on the basis of machine-hours. Information pertaining to machine-hours for the year follows:  The following costs pertain to the Maintenance Department:
 For performance evaluation purposes, how much of the Maintenance Department's variable cost should be charged to the Fabrication Department at year-end?

Quizplus · Accepted Answer

Budgeted rate for variable cost = Total budgeted cost ÷ Total budgeted activity
= $200,000 ÷ (40,000 machine-hours + 120,000 machine-hours) = $1.25 per machine-hour
Variable charges = Budgeted rate for variable cost × Actual activity
= $1.25 per machine-hour × 45,000 machine-hours = $56,250

Ghia Manufacturing Corporation Charges Its Maintenance Department's Service Costs to Two