Erholm 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 $31 per shipment. The Logistics Department's fixed costs are budgeted at $411,800 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 $290,700 and fixed costs totaled $431,950. The Atlantic Division had a total of 3,900 shipments and the Pacific Division had a total of 5,100 shipments for the year. How much Logistics Department cost should be charged to the Pacific Division at the END of the year for performance evaluation purposes

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Business

Leilani Sampson

16 October, 06:48

Erholm 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 $31 per shipment. The Logistics Department's fixed costs are budgeted at $411,800 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 $290,700 and fixed costs totaled $431,950. The Atlantic Division had a total of 3,900 shipments and the Pacific Division had a total of 5,100 shipments for the year. How much Logistics Department cost should be charged to the Pacific Division at the END of the year for performance evaluation purposes

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Leilani Haney · Answer 1

1. Logistics Department's cost charged to the Pacific Division at the END of the year for performance evaluation purposes is $409,502.

2. Allocation of Logistics Department Costs to Pacific Division:

Actual Budget

Variable cost, (5,100/9,000 * $290,700) = $164,730 $158,100

Fixed Cost (5,100/9,000 * $431,950) = $244,772 $233,353

Total variable & fixed costs $409,502 $391,453

Explanation:

Budgeted costs is less than actual, giving raise to a variance of $18,049 Unfavorable. The implication is that more expenses were actually incurred than was budgeted.

In performance evaluation, it is good practise to compare like with like. This is why the budgeted figures reflect actual units of production.