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Exam 20: Performance Measurement in Decentralized Organizations

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Question 21

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For performance evaluation purposes, budgeted service department costs, instead of actual service department costs, should be charged to the operating departments.

A) True
B) False

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Question 22

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Scuderi Corporation has two operating divisions-an Inland Division and a Coast Division. The company's Customer Service Department provides services to both divisions. The variable costs of the Customer Service Department are budgeted at $29 per order. The Customer Service Department's fixed costs are budgeted at $381,600 for the year. The fixed costs of the Customer Service Department are determined based on the peak period orders. At the end of the year, actual Customer Service Department variable costs totaled $219,905 and fixed costs totaled $383,860. The Inland Division had a total of 1,520 orders and the Coast Division had a total of 5,690 orders for the year. Required: a. Prepare a report showing how much of the Customer Service Department's costs should be charged to each of the operating divisions at the end of the year. b. How much of the actual Customer Service Department costs should not be charged to the operating divisions at the end of the year? Who should be held responsible for these uncharged costs?

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a. The operating divisions would be char...

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Question 23

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Omeara 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 $48 per shipment. The Logistics Department's fixed costs are budgeted at $431,600 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 $505,920 and fixed costs totaled $438,080. The Atlantic Division had a total of 3,900 shipments and the Pacific Division had a total of 6,300 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?

The variable costs of service departments should typically be charged to operating departments on the basis of the number of units produced in the operating departments.

Fixed service department costs should be charged to operating departments at the end of the period according to which one of the following the formulas?

Peake Corporation's Maintenance Department provides services to the company's two operating divisions-the Paints Division and the Stains Division. The variable costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments. The fixed costs of the Maintenance Department are budgeted based on the number of cases produced by the operating departments during the peak period. Data appear below: For performance evaluation purposes, how much Maintenance Department cost should be charged to the Stains Division at the end of the year?

How much of the actual Food Services cost for June should be kept in the Food Services Department and not be charged to the other departments for performance evaluation purposes?

How much actual Maintenance Department cost should not be allocated to the operating divisions at the end of the year?

Warehouse Services is a service department in the Werner Company, providing storage service to three operating departments. The company charges the costs of this department to operating departments on the basis of cubic feet occupied. Last year, Warehouse Services budgeted variable storage cost of $0.15 per cubic foot occupied. The budgeted total fixed cost was $120,000, and was determined by the long-term storage needs of the operating departments. Actual storage space occupied during the year, along with long-term storage needs of operating departments, is given below: Actual variable storage costs amounted to $0.16 per cubic foot occupied. Actual fixed storage costs were $123,000. Required: a. Compute the amount of variable storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of fixed storage cost that should be charged to each operating department at the end of the year for performance evaluation purposes.

How much Food Services cost should be charged to the Surgical Department at the end of June for performance evaluation purposes?

How much Maintenance Department cost should be allocated to the Stains Division at the end of the year?

For performance evaluation purposes, the best way to charge the fixed costs of a service department to operating departments is with an allocation base such as direct labor-hours that reflects the actual level of activity for the period.

Trenron, Inc. has a maintenance department that provides services to the company's two operating departments. The variable costs of the maintenance department are charged on the basis of the number of maintenance hours logged in each department. Last year, budgeted variable maintenance costs were $8.60 per maintenance hour and actual variable maintenance costs were $8.75 per maintenance hour. The budgeted and actual maintenance hours for each operating department for last year appear below: Required: a. Compute the amount of variable maintenance department cost that should have been charged to each operating department at the end of the year for performance evaluation purposes. b. Compute the amount of actual variable maintenance department cost that should not have been charged to the operating departments at the end of the year for performance evaluation purposes.

How much actual Order Fulfillment Department cost should not be allocated to the operating divisions at the end of the year?

Leslie Company operates a cafeteria for the benefit of its employees. The company subsidizes the cafeteria heavily by allowing employees to purchase meals at greatly reduced prices. Budgeted and actual costs in the cafeteria for the year just ended are as follows: $\begin{array} { l c c } & \text { Budgeted } & \text { Actual } \\\text { Variable costs*....... } & \$ 500,000 & \$ 436,000 \\\text { Fixed costs.......... } & \$ 340,000 & \$ 352,000\end{array}$ *Unrecovered cost after deducting amounts received from employees. Costs of the cafeteria are charged to producing departments on the basis of the number of employees in these departments. Fixed costs are charged on the basis of the peak-period number of employees. Data on employees in the company's producing departments follows: $\begin{array}{ccc}&\text { Machining } & \text { Assembly } & \text { Total } \\\text { Budgeted number of employees }&300 & 500 & 800 \\\text { Actual number of employees. }&200 & 400 & 600 \\\text { Peak-period number of employees}&400 & 600 & 1,000\end{array}$ Required: a. Compute the dollar amount of variable and fixed costs that should be charged to each of the producing departments at the end of the year for purposes of evaluating performance. b. Identify the amount, if any, of actual costs that should not be charged to the operating departments.

Fairview Hospital has a Food Services department that provides food for patients in all other departments of the hospital. For May, variable food costs were budgeted at $3 per meal, based on 15,000 meals served during the month. At the end of the month, it was determined that 16,000 meals had been served at a total cost of $54,000. How much food cost should be charged to the other departments at the end of the month?

How much Logistics Department cost should be allocated to the West Division at the end of the year?

Wilson Company maintains a cafeteria for its employees. For June, variable food costs were budgeted at $45 per employee based on a budgeted level of 200 employees in other departments. During the month, an average of 190 employees worked in other departments and actual food costs totaled $9,250. How much food cost should be charged to the other departments at the end of the month for performance evaluation purposes?

Redder Company has a purchasing department that provides services to two factories located in Fargo and the other in Custer. Budgeted costs for the purchasing department consist of $55,000 per year of fixed costs and $8 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Fargo factory requires 40% of the peak-period capacity and the Custer factory requires 60%. During the coming year, 1,800 purchase orders were processed for the Fargo factory and 2,700 purchase orders for the Custer factory. Required: Compute the amount of purchasing department cost that should be charged to each factory for the year.

Since service departments do not engage in production, there can be no variances in service department costs.