(Appendix 11B) Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow:
The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.
-For performance evaluation purposes,how much of the actual Housekeeping Department costs for September should not be charged to the operating departments?
A) $960
B) $5,760
C) $0
D) $1,240

Question

(Appendix 11B) Lakeside Nursing Home has two operating departments, Custodial Care and Rehabilitation. It also has a Housekeeping Department that serves the two operating departments. The costs of the Housekeeping Department are all variable and are charged to the operating departments on the basis of labor-hours. Data for September follow:
  The budgeted costs of the Housekeeping Department for September were $24,000 and the actual costs were $29,760.
-For performance evaluation purposes,how much of the actual Housekeeping Department costs for September should not be charged to the operating departments?
A) $960 
B) $5,760 
C) $0 
D) $1,240

Quizplus · Accepted Answer

Budgeted rate for variable cost = Total budgeted cost ÷ Total budgeted activity
= $24,000 ÷ (3,000 labor-hours + 1,000 labor-hours) = $6 per labor-hour
Variable charges = Budgeted rate for variable cost × Actual activity
= $6 per labor-hour × (3,200 labor-hours + 1,600 labor-hours) = $28,800
Spending variance = Actual variable cost - Variable charges
= $29,760 - $28,800 = $960

(Appendix 11B) Lakeside Nursing Home Has Two Operating Departments, Custodial