Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company’s mine to its two s
teel mills—the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department total $350,000 per year, consisting of $0.25 per ton variable cost and $300,000 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, the Northern Plant requires 70% of the Transport Services Department’s capacity and the Southern Plant requires 30%. During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 130,000 tons; Southern Plant, 50,000 tons. The Transport Services Department incurred $364,000 in cost during the year, of which $54,000 was variable cost and $310,000 was fixed cost. Required: 1. How much of the $54,000 in variable cost should be charged to each plant. 2. How much of the $310,000 in fixed cost should be charged to each plant. 3. How much amount out of $364,000 in the Transport Services Department cost should be treated as a spending variance and not charged to the plants?
2 answers:
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