Mannerman Products, Incorporated, 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?
A) $0
B) $10,000
C) $5,000
D) $15,000

Question

Mannerman Products, Incorporated, 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?
A) $0 
B) $10,000 
C) $5,000 
D) $15,000

Quizplus · Accepted Answer

Total peak-period capacity = 100%
Peak-period allocation for Machining department = 60%
Peak-period allocation for Fabrication department = 40%
Therefore, the fixed cost to be allocated to each department would be as follows:

Machining department: $60,000 * 60% = $36,000
Fabrication department: $60,000 * 40% = $24,000

Total allocated fixed costs = $60,000

However, the actual fixed costs incurred are $65,000. Therefore, the amount that should not be charged to the other departments would be:

$65,000 - $60,000 = $5,000

Thus, the correct answer is C.

Mannerman Products, Incorporated, Operates an Electric Power Plant Which Provides