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Homework answers / question archive / Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company's mine to its two steel mills-the Northern Plant and the Southern Plant
Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company's mine to its two steel mills-the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department total $322,100 per year, consisting of $0.24 per ton variable cost and $272,100 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 68% of the Transport Services Department's capacity and the Southern Plant requires 32%. During the year, the Transport Services Department actually hauled 115,000 tons of ore to the Northern Plant and 57,700 tons to the Southern Plant. The Transport Services Department incurred $368,000 in cost during the year, of which $53,200 was variable cost and $314,800 was fixed cost. Required: 1. How much of the Transport Services Department's variable costs should be charged to each plant? 2. How much of the $314,800 in fixed cost should be charged to each plant? 3. Should any of the Transport Services Department's actual total cost of $368,000 be treated as a spending variance and not charged to the plants? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How much of the Transport Services Department's variable costs should be charged to each plant? Variable cost charged to Northern Plant Variable cost charged to Southern Plant
Required 1 Required 2 Required 3 How much of the fixed cost should be charged to each plant? Fixed cost charged to Northern Plant Fixed cost charged to Southern Plant
Required 1 Required 2 Required 3 Should any of the Transport Services Department's actual total cost of $368,000 be treated as a spending variance and not charged to the plants? Spending variance
1) Variable Cost charged to Northern plant = Tons of ore haulded to northern plants * Budgeted variable cost per ton
= 115,000 * 0.24
= $27,600
Variable Cost charged to Southern plant = Tons of ore haulded to southern plants * Budgeted variable cost per ton
= 57,700 * 0.24
= $13,848
2) Fixed Cost to Northern Plant = Budgeted Fixed Cost * Transport service capacity required by northern plant
= 272,100 * 68%
= $185,028
Fixed Cost to Sourthern Plant = Budgeted Fixed Cost * Transport service capacity required by southern plant
= 272,100 * 32%
= $87,072
3) Spending Variance = Total Actual Cost incurred - Total cost charged (Note 1)
= 368,000 - 313,548
= $54,452
Note 1 : Total Cost charged = Total Cost of Northern plant + Total Cost of Southern Plant
= (27,600 + 185,028) + ( 13,848 + 87,072)
= $313,548
