Herriott 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 $43 per shipment.The Logistics Department's fixed costs are budgeted at $209,000 for the year.The fixed costs of the Logistics Department are determined based on peak-period demand. At the end of the year,actual Logistics Department variable costs totaled $246,960 and fixed costs totaled $217,870.The Atlantic Division had a total of 3,000 shipments and the Pacific Division had a total of 2,600 shipments for the year.For performance evaluation purposes,how much actual Logistics Department cost should NOT be charged to the operating divisions at the end of the year?
A)$8,870
B)$15,030
C)$6,160
D)$0

Question

Herriott 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 $43 per shipment.The Logistics Department's fixed costs are budgeted at $209,000 for the year.The fixed costs of the Logistics Department are determined based on peak-period demand.  At the end of the year,actual Logistics Department variable costs totaled $246,960 and fixed costs totaled $217,870.The Atlantic Division had a total of 3,000 shipments and the Pacific Division had a total of 2,600 shipments for the year.For performance evaluation purposes,how much actual Logistics Department cost should NOT be charged to the operating divisions at the end of the year?
A)$8,870 
B)$15,030 
C)$6,160 
D)$0

Quizplus · Accepted Answer

First we need to calculate the budgeted fixed cost per shipment:
Budgeted Fixed Cost = Fixed Costs/Total Budgeted Shipments
Budgeted Fixed Cost = $209,000/(3,000+2,600)
Budgeted Fixed Cost = $34.83 per shipment
Now we can calculate the total budgeted cost per shipment:
Total Budgeted Cost = Variable Cost per Shipment + Budgeted Fixed Cost per Shipment
Total Budgeted Cost = $43 + $34.83
Total Budgeted Cost = $77.83 per shipment
The actual variable cost per shipment is given as $43, which is the same as the budgeted variable cost per shipment. Therefore, the difference between the actual Logistics Department cost and the budgeted Logistics Department cost is entirely due to the fixed costs being over budget.
Actual Fixed Cost = $217,870
Budgeted Fixed Cost = $209,000
Fixed Cost Variance = Actual Fixed Cost - Budgeted Fixed Cost
Fixed Cost Variance = $217,870 - $209,000
Fixed Cost Variance = $8,870
Therefore, the actual Logistics Department cost that should NOT be charged to the operating divisions at the end of the year is $8,870.

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