Schabel Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $78 per order. The Customer Service Department's fixed costs are budgeted at $270,000 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders. At the end of the year, actual Customer Service Department variable costs totaled $483,570 and fixed costs totaled $298,128. The Consumer Division had a total of 2,372 orders and the Commercial Division had a total of 3,703 orders for the year. For performance evaluation purposes, how much actual Customer Service Department cost should NOT be charged to the operating divisions at the end of the year?
A) $28,128
B) $37,848
C) $9,720
D) $0

Question

Schabel Corporation has two operating divisions-a Consumer Division and a Commercial Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $78 per order. The Customer Service Department's fixed costs are budgeted at $270,000 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders.  At the end of the year, actual Customer Service Department variable costs totaled $483,570 and fixed costs totaled $298,128. The Consumer Division had a total of 2,372 orders and the Commercial Division had a total of 3,703 orders for the year. For performance evaluation purposes, how much actual Customer Service Department cost should NOT be charged to the operating divisions at the end of the year?
A) $28,128 
B) $37,848 
C) $9,720 
D) $0

Quizplus · Accepted Answer

To find how much actual Customer Service Department cost should NOT be charged to the operating divisions, we need to calculate the total budgeted cost for the year:
Fixed costs = $270,000
Variable costs per order = $78
Total orders = 2,372 + 3,703 = 6,075
Total variable costs = $78 x 6,075 = $474,150

Total budgeted cost = Fixed costs + Variable costs = $270,000 + $474,150 = $744,150

The actual total cost incurred by the Customer Service Department is $483,570 + $298,128 = $781,698.

Therefore, the actual cost that should NOT be charged to the operating divisions is:
Actual cost - Total variable cost = $781,698 - $474,150 = $307,548.

However, we only need to find the amount that should not be charged to the operating divisions, which means we need to allocate the actual fixed cost incurred by the Customer Service Department based on the number of orders from each division. The allocation is as follows:

Consumer Division:
Fixed cost allocation = ($270,000 ÷ 6,075 orders) x 2,372 orders = $108,895.06

Commercial Division:
Fixed cost allocation = ($270,000 ÷ 6,075 orders) x 3,703 orders = $161,232.34

Total fixed cost allocation = $108,895.06 + $161,232.34 = $270,127.40

Actual cost that should NOT be charged = Actual total cost - Total variable cost - Fixed cost allocation
= $781,698 - $474,150 - $270,127.40
= $37,848.60

Therefore, the best answer is B.

Schabel Corporation Has Two Operating Divisions-A Consumer Division and a Commercial