The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York unit is 

new, much like a start-up company. The costs of the Personnel Department are allocated to each unit based on the number of employees in order to determine unit profitability. The current rate is $530 per employee. Data for the fiscal year just ended show the following:

 

MiamiNew YorkNumber of employees1,230330Number of new hires1323Number of employees departing1727

Orlando, the manager of the New York unit, is unhappy with the results of the controller's study. He asks the controller to develop separate rates for fixed and variable costs in the Personnel Department. The controller reports 

back to Orlando that the rates would be as follows:

 

Allocation based onVariable RateFixed RateTotal RateEmployees$65per employee$165per employee$230per employeeTransitions$2,030per transition$3,820per transition$5,850per transition

Required:

a.Orlando argues that New York should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if New York did not exist. Compute the cost allocated to each unit using 

the approach Orlando prefers.

 

Answer rating: 100% (QA)

To compute the cost allocated to each unit using Orlandos preferred approach of only allocating vari... View the full answer