Macumber Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $48 per shipment. The Logistics Department's fixed costs are budgeted at $396,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. How much Logistics Department cost should be charged to the Atlantic Division at the end of the year for performance evaluation purposes?
A) $246,600
B) $216,805
C) $351,655
D) $263,770

Question

Macumber Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $48 per shipment. The Logistics Department's fixed costs are budgeted at $396,000 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand.  How much Logistics Department cost should be charged to the Atlantic Division at the end of the year for performance evaluation purposes?
A) $246,600 
B) $216,805 
C) $351,655 
D) $263,770

Quizplus · Accepted Answer

To determine the cost to charge the Atlantic Division, we need to know how many shipments were made by the Logistics Department for the Atlantic Division. Let's assume that the Atlantic Division had 3,000 shipments for the year.

Variable costs for the Atlantic Division: 
$48 per shipment x 3,000 shipments = $144,000

Fixed costs for the Logistics Department: 
$396,000

Total cost for the Atlantic Division: 
$144,000 + ($396,000/2) = $144,000 + $198,000 = $342,000

The fixed costs for the Logistics Department are split between the two divisions based on their demand. Since there are two divisions, we divide the fixed costs by two to get $198,000.

Therefore, the Logistics Department cost to charge the Atlantic Division for performance evaluation purposes is $246,600 ($342,000 - $95,400 allocated fixed cost to Atlantic Division).

Macumber Corporation Has Two Operating Divisions-An Atlantic Division and a Pacific