At the Todd Company, the cost of the personnel department has always been charge
ID: 2504279 • Letter: A
Question
At the Todd Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.
Total personnel department costs are $320,000.
Department A B C
Number of employees 30 270 100
The number of new hires 8 12 5
1) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?
A) $24,000
B) $10,667
C) $102,400
D) $40,000
2) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?
A) $24,000
B) $10,667
C) $102,400
D) $40,000
Explanation / Answer
1) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?
Total number of employees: 30 + 270 + 100 = 400
Amount allocated to A: $320,000*30/400 = $24,000
Answer: A) $24,000
2) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?
Total number of new hires: 8 + 12 + 5 = 25
Amount allocated to A: $320,000*8/25 = $104,200
Answer: C) $102,400
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