Operating Division Allocation Question Need Help

Question

Boudrie 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 determined by the number of cases produced by the operating departments during the peak period. Data appear below :

 

Maintenance Department :

 

Budgeted Variable Cost : $3 per case

Budgeted Total Fixed Cost : $704,000

Actual Total Variable Cost : $281,632

Actual Total Fixed Cost : $709,030

 

Paints Division :

 

Percentage of Peak Capacity Required : 45%

Budgeted Cases : 29,000

Actual Cases : 29,020

 

Stains Division :

 

Percentage of Peak Capacity Required : 55%

Budgeted Cases : 59,000

Actual Cases : 58,990

 

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

 

A) $22,632 B) $0 C) $17,602 D) $5,030 E) None

 

I believe answer was A) but either way, I need help with steps as to the answer and why.

Answer 1

The correct answer is option A) 22,632

 

The maintenance dept cost that should not be allocated to the operating divisions are:

 - Actual Variable cost Paints Div ($3x 29,020 cases) =   87,060

 - Actual variable cost Stain Div ( $3 X 58,990 cases) = 176,970

Total Actual variable cost                                         =  264,030   

The Actual variable cost per Maintenance dept           =  281,632

 V. cost difference should not be allocated                      17,602

Fixed cost should not be allocated                                   5,030  (budget 704,000-acutal 709,030)

Total actual cost should not be allocated                         22,632