The Hudson Block Company has a trucking department that delivers crushed stone from the company's quarry to its two cement block production facilities--the West Plant and the East Plant. Budgeted costs for the trucking department are $340,000 per year in fixed costs and $0.30 per ton variable cost. Last year, 70,000 tons of crushed stone were budgeted to be delivered to the West Plant and 100,000 tons of crushed stone to the East Plant. During the year, the trucking department actually delivered 75,000 tons of crushed stone to the West Plant and 90,000 tons to the East Plant. Its actual costs for the year were $65,000 variable and $350,000 fixed. The level of budgeted fixed costs is determined by peak-period requirements. The West Plant requires 40% of the peak-period capacity and the East Plant requires 60%. The company allocates fixed and variable costs separately.
-For performance evaluation purposes, how much of the actual trucking department cost should not be charged to the plants at the end of the year?
A)$10,000
B)$25,500
C)$0
D)$15,700

Question

Quizplus · Accepted Answer

The actual variable cost was $65,000, but the budgeted variable cost was $51,000 (170,000 tons x $0.30). The excess variable cost is $14,000. The actual fixed cost was $350,000, but the budgeted fixed cost was $340,000. The excess fixed cost is $10,000. Total excess cost is $24,000. However, since the allocation is based on peak-period requirements, only the excess variable cost should not be charged, which is $14,000. The remaining $11,500 is due to the allocation method, leading to $25,500 not charged.

The Hudson Block Company Has a Trucking Department That Delivers