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Fruit Juice, Inc.: What is the indirect cost rate per truck trip when (a) budgeted costs and budgeted quantities (trips) are used and (b) actual costs and actual quantities (trips) are used?

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14-19
Fruit juice, inc. processes orange juice as its East Miami plant and grapefruit juice at its West Miami plant. It purchases oranges and grapefruit from growers' cooperatives in the Orlando area. It owns its own trucking fleet. It takes the same mileage to go to each Miami plant from Orlando. The trucking fleet is run as a cost centre. Each Miami plant is billed for the direct costs and the indirect costs of each return trip.
The trucking fleet costs include direct costs (labor costs of drivers, fuel, and toll charges) and indirect costs. Indirect costs include wear and tear on tires and the vehicle, leasing costs, insurance and state registration fees.
At the start of 2002, the Orange Juice Division budgeted for 150 Orlando to East Miami truck trips while the Grapefruit Juice Division budgeted for 100 Orlando to West Miami truck trips. On the basis of these 250 budgeted trips, the Trucking Fleet Division budgeted trucking fleet indirect costs of $575.000. the following actual results occurred in 2002.
Trucking fleet indirect costs $645.000
Trips to East Miami plant 200
Trips to West Miami plant 100

The Trucking Fleet division uses a single rate method when allocating indirect trucking costs. The costs charged to each plant equal this rate times the actual number of trips made.
1) What is the indirect cost rate per truck trip when (a) budgeted costs and budgeted quantities (trips) are used and (b) actual costs and actual quantities (trips) are used?
2) From the viewpoint of the Orange Juice Division, what are the effects of using budgeted costs/quantities rather than actual costs/quantities?

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Solution Summary

The indirect cost rate per truck trip budgeted costs are determined. Indirect costs for a trucking fleet is examined.

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1) What is the indirect cost rate per truck trip when (a) budgeted costs and budgeted quantities (trips) are used and (b) actual costs and actual quantities (trips) are used?

1. a. Budgeted indirect costs $575,000
Budgeted trips = 250 trips

= $2,300 per round trip

b. Actual indirect costs $645,000
Actual trips = 300 trips

= $2,150 per round trip

Charges with Single-Rate Method:

a. ...

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