Marazzi Corporation has two operating divisions-an East Division and a West Divi
ID: 2488127 • Letter: M
Question
Marazzi Corporation has two operating divisions-an East Division and a West Division. The company's Logistics Department services both divisions. The variable costs of the Logistics Department are budgeted at $39 per shipment. The Logistics Department's fixed costs are budgeted at $402,400 for the year. The fixed costs of the Logistics Department are determined based on peak-period demand. Percentage of Peak Period Capacity Required Budgeted Orders East Division 15% 1,710 West Division 85% 5,440 At the end of the year, actual Logistics Department variable costs totaled $300,105 and fixed costs totaled $428,000. The East Division had a total of 2,560 shipments and the West Division had a total of 4,850 shipments for the year. How much actual Logistics Department cost should not be allocated to the operating divisions at the end of the year?
Explanation / Answer
Solution:
The actual logistics department costs to be alloted to operating divisions:
Variable cost of East Division = 2,560 shipment * $39 = $99,840
Variable cost of West Division = 4,850 shipment * $39 = $189,150
Fixed costs of Logistics department = $402,400
Total costs to be alloted = $691,390
Hence cost that need not be alloted to operating divisions = $300,105 + $428,000 - $691,390 = $36,715.