Smurnov Company has a purchasing department that provides services to two factories located in Austin and the other in Belmont. Budgeted costs for the purchasing department consist of $91,000 per year of fixed costs and $7 per purchase order for variable costs. The level of budgeted fixed costs is determined by the peak-period requirements. The Austin factory requires 3/7 of the peak-period capacity and the Belmont factory requires 4/7.During the year, 2,700 purchase orders were processed for the Austin factory and 3,900 purchase orders for the Belmont factory.Required:Compute the amount of purchasing department cost that should be charged to each factory for the year.
What will be an ideal response?
| Austin | Belmont | |||||
| Variable cost charges: | ||||||
| 2,700 purchase orders × $7.00 per purchase order. | $ | 18,900 | ||||
| 3,900 purchase orders × $7.00 per purchase order. | $ | 27,300 | ||||
| Fixed cost charges: | ||||||
| 3/7 × $91,000 | 39,000 | |||||
| 4/7 × $91,000 | 52,000 | |||||
| Total charges | $ | 57,900 | $ | 79,300 | ||
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