Fixed costs budgeted for Caterton's Maintenance Department for last year totaled $280,000; actual fixed costs for the year totaled $308,000. The level of budgeted fixed costs is determined by peak-period requirements. The Milling Department requires 15/35 of the peak-period capacity and the Assembly Department requires 20/35.
-How much of the actual fixed maintenance cost for the year should be kept in the Maintenance department and not charged to the other departments for performance evaluation purposes?
A) $0
B) $308,000
C) $28,000
D) $280,000

Question

Quizplus · Accepted Answer

The total level of budgeted fixed costs for the two departments is 15/35 + 20/35 = 35/35. Therefore, the portion of the actual fixed cost that should be kept in the Maintenance Department is 280,000/308,000 = 0.9091 or 90.91%. This means that 9.09% of the actual fixed cost should be allocated to the other departments. Therefore, the amount to be kept in the Maintenance Department is 0.9091 x 308,000 = $280,872. Since this amount is higher than the budgeted fixed cost of $280,000, none of the actual fixed cost should be charged to the other departments for performance evaluation purposes. Thus, the correct answer is C, $28,000.

Fixed Costs Budgeted for Caterton's Maintenance Department for Last Year