Fox Company has the following data concerning the machine-hours in its operating departments: Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to Department B at the end of the year for performance evaluation purposes?
A) $12,000
B) $14,400
C) $15,000
D) $18,000

Question

Fox Company has the following data concerning the machine-hours in its operating departments:  Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenance cost should be charged to Department B at the end of the year for performance evaluation purposes?
A) $12,000 
B) $14,400 
C) $15,000 
D) $18,000

Quizplus · Accepted Answer

The fixed maintenance cost should be allocated to the departments based on their machine-hours. First, calculate the predetermined fixed maintenance cost rate:

Predetermined fixed maintenance cost rate = Budgeted fixed maintenance cost / Budgeted machine-hours

Predetermined fixed maintenance cost rate = $30,000 / 15,000 machine-hours 
Predetermined fixed maintenance cost rate = $2 per machine-hour

Then, calculate the fixed maintenance cost that should be charged to Department B:

Fixed maintenance cost for Department B = Actual machine-hours for Department B x Predetermined fixed maintenance cost rate

Fixed maintenance cost for Department B = 6,000 machine-hours x $2 per machine-hour 
Fixed maintenance cost for Department B = $12,000

Therefore, the fixed maintenance cost that should be charged to Department B is $12,000.

Fox Company Has the Following Data Concerning the Machine-Hours in Its