Nafth Company has an Equipment Services Department that performs all needed maintenance work on the equipment in the company's Fabrication and Assembly Departments. Costs of the equipment Services Department are charged to the Fabrication and Assembly Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow: For the year just ended, the company budgeted its variable maintenance costs at $210,000 for the year. Actual variable maintenance costs for the year totaled $255,000.
How much (if any) of the $255,000 in variable maintenance cost should not be charged to the Fabrication and Assembly Departments?
A) $0
B) $15,000
C) $45,000
D) $60,000

Question

Nafth Company has an Equipment Services Department that performs all needed maintenance work on the equipment in the company's Fabrication and Assembly Departments. Costs of the equipment Services Department are charged to the Fabrication and Assembly Departments on the basis of direct labor-hours. Data on direct labor-hours for last year follow:  For the year just ended, the company budgeted its variable maintenance costs at $210,000 for the year. Actual variable maintenance costs for the year totaled $255,000.
How much (if any) of the $255,000 in variable maintenance cost should not be charged to the Fabrication and Assembly Departments?
A) $0 
B) $15,000 
C) $45,000 
D) $60,000

Quizplus · Accepted Answer

Budgeted rate = Total budgeted cost ÷ Total budgeted activity
= $210,000 ÷ 70,000 direct labor-hours = $3.00 per direct labor-hour
Spending variance = Actual cost incurred − Charges to the operating departments
= $255,000 − ($3.00 per direct labor-hour × 80,000 direct labor-hours)
= $255,000 − $240,000 = $15,000

Nafth Company Has an Equipment Services Department That Performs All