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.
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.