EXERCISE 11B–3 Service Department Charges [LO6] Gutherie Oil Company has a Transport Services…

EXERCISE 11B–3 Service Department Charges [LO6]

Gutherie Oil Company has a Transport Services Department that provides trucks to transport crude oil from docks to the company’s Arbon Refinery and Beck Refinery. Budgeted costs for the trans- port services consist of $0.30 per gallon variable cost and $200,000 fixed cost. The level of fixed cost is determined by peak-period requirements. During the peak period, Arbon Refinery requires 60% of the capacity and the Beck Refinery requires 40%.

During the year, the Transport Services Department actually hauled the following amounts of crude oil for the two refineries: Arbon Refinery, 260,000 gallons; and Beck Refinery, 140,000 gallons. The Transport Services Department incurred $365,000 in cost during the year, of   which

$148,000 was variable cost and $217,000 was fixed cost.

Required:

1.       Determine how much of the $148,000 in variable cost should be charged to each refinery.

2.       Determine how much of the $217,000 in fixed cost should be charged to each refinery.

3.       Will any of the $365,000 in the Transport Services Department cost not be charged to the refineries? Explain.

 

 

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