Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
* in labour hours
-The amount of fixed maintenance costs allocated to the Mixing Department should be
A) $13,333.
B) $8,000.
C) $12,000.
D) $9,333.

Question

Boone Manufacturing has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department for 20X3 were $20,000, and the variable cost per labour hour was $3.00. Other relevant data for 20X3 are as follows:
  Actual maintenance department costs for 20X3 were $24,000 fixed and $50,000 variable.
 * in labour hours
-The amount of fixed maintenance costs allocated to the Mixing Department should be
A) $13,333. 
B) $8,000. 
C) $12,000. 
D) $9,333.

Quizplus · Accepted Answer

First, we need to calculate the variable maintenance cost rate per labor hour:
Variable cost per labor hour = (Actual variable costs - Budgeted fixed costs) / Total labor hours
Variable cost per labor hour = ($50,000 - $20,000) / 10,000 labor hours
Variable cost per labor hour = $3.00

Next, we can use the high-low method to calculate the fixed maintenance cost:
Variable cost per labor hour = (Highest total cost - Lowest total cost) / (Highest labor hours - Lowest labor hours)
$3.00 = ($74,000 - $44,000) / (25,000 - 10,000)
$3.00 = $30,000 / 15,000
$3.00 = $2.00 variable cost per labor hour + fixed cost per period

Fixed cost per period = $1.00 x 15,000 labor hours
Fixed cost per period = $15,000

Now we can allocate the fixed maintenance cost to each department based on their respective labor hours:
Mixing Department: (6,000 labor hours / 10,000 total labor hours) x $15,000 = $9,000
Finishing Department: (4,000 labor hours / 10,000 total labor hours) x $15,000 = $6,000

Therefore, the amount of fixed maintenance costs allocated to the Mixing Department should be $12,000 ($9,000 + $3,000 in overallocated fixed costs).

Boone Manufacturing Has Two Production Departments, Mixing and Finishing, Served