Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow: The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.
For performance evaluation purposes, how much of the actual Housekeeping Department costs for September should not be charged to the operating departments?

Question

Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow:  The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.
For performance evaluation purposes, how much of the actual Housekeeping Department costs for September should not be charged to the operating departments?

Quizplus · Accepted Answer

Budgeted rate for variable cost = Total budgeted cost ÷ Total budgeted activity
= $24,000 ÷ (3,000 labor-hours + 1,000 labor-hours) = $6 per labor-hour
Variable charges = Budgeted rate for variable cost × Actual activity
= $6 per labor-hour × (3,200 labor-hours + 1,600 labor-hours) = $28,800
Spending variance = Actual variable cost − Variable charges
= $29,760 − $28,800 = $960

Lakeside Nursing Home Has Two Operating Departments, Custodial Care and Rehabilitation