I only need the explanation.

Question

Tasman Products, Ltd., of Australia has a Maintenance Department that services the equipment in the company's Forming Department and Assembly Department. The cost of this servicing is changed to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below.

Data for the Maintenance Department follow:

Particulars	Budget	Actual
Variable costs for lubricants	$96,000	$110,000
Fixed costs for salaries and other	$150,000	$153,000

Budgeted at $0.40 per machine-hour.

Data for the Forming and Assembly departments follow:

Particulars	Percentage of Peak-Period Capacity Required	Machine hours
		Budget	Actual
Forming Department	70%	160,000	190,000
Assembly Department	30%	80,000	70,000
Total	100%	240,000	260,000

The level of fixed costs in the Maintenance Department is determined by peak-period requirements.

Required:

Management would like data to assist in comparing actual performance to planned performance in the Maintenance Department and in the other departments.

1. How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department?

Particulars	Forming department	Assembly department	Total
Variable costs
Fixed costs
Total cost charged

First, in part one, you calculate the variable costs for forming and assembly based on the actual machine hours but the fixed costs you calculate based on the budgeted fixed costs of salaries and others. Could you provide some explanation as to why in one case here you used actual and the other you used budget?

Answer

a.

	Particulars	Forming	Assembly	Total
	Variable cost (@ 0.40 MH)	76,000 (WN 1)	28,000 (WN 2)	104,000
Add:	Fixed cost	105,000 (WN 3)	45,000 (WN 4)	150,000
	Total	181,000	73,000	254,000

Working Notes:

1. Variable cost (Forming) = 190,000 * 40% = $76,000

2. Variable cost (Assembly) = 70,000 * 40% = $28,000

3. Fixed cost (Forming) = 70% * 150,000 = $105,000

4. Fixed cost (Assembly) = 30% * 150,000 = $45,000

First, in part one, you calculate the variable costs for forming and assembly based on the actual machine hours but the fixed costs you calculate based on the budgeted fixed costs of salaries and others. Could you provide some explanation as to why in one case here you used actual and the other you used budget?