The Personnel Department at Drumm Corporation is centralized and provides services to the two operating units: Illinois and Ohio. The Illinois unit is the original unit of Drumm and is well established. The Ohio 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 $500 per employee. Data for the fiscal year just ended show the following:

a. Compute the cost allocated to each unit using the current allocation system.
b. Rob, the manager of the Illinois unit, is unhappy with the allocation from Personnel.
He believes that he gets little benefit other than the occasional hire and termination help. He asks the controller's office to estimate the amount of Personnel Department cost associated with (a) routine personnel matters (benefits, and so on) and those associated with hiring employees and assisting with departing employees (transitions). The controller responds that if they separated the overhead costs on this basis, the rates would be $200 per employee for routine matters and $5,625 for each transition (each hiring and each departure counts as one transition). Recompute the costs allocated to each unit using the separate rates for routine and transitionalmatters.

  • CreatedDecember 18, 2013
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