Total variable costs have a direct relationship with the activity base. It increases or decreases in approximate proportion to increase or decrease in the activity base respectively. Total fixed costs do not change with the change in activity base provided that activities are performed within the relevant range. Fixed costs are period costs such as rent, interest on loans, and depreciation. These costs have to be paid whether production occurs or not. That is why fixed costs remain the same at all levels of production. : The Medical Services Department charges the Cutting Department, Milling Department, and Assembly Department.

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Chapter 11, Problem 15E

1.

To determine

Total variable costs have a direct relationship with the activity base. It increases or decreases in approximate proportion to increase or decrease in the activity base respectively.

Total fixed costs do not change with the change in activity base provided that activities are performed within the relevant range. Fixed costs are period costs such as rent, interest on loans, and depreciation. These costs have to be paid whether production occurs or not. That is why fixed costs remain the same at all levels of production.

:

The Medical Services Department charges the Cutting Department, Milling Department, and Assembly Department.

2.

To determine

Spending variance shows the relationship between the budgeted cost and the actual cost incurred. If the budgeted cost is more than the actual cost incurred, then it is termed a favorable spending variance and vice versa.

:

The costs that should be treated as a spending variance and not charged to the operating departments.

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