Kumar, Inc., evaluates managers of producing departments on their ability to control costs. In addition to the costs directly traceable to their departments, each production manager is held responsible for a share of the costs of a support center, the Human Resources (HR) Department. The total costs of HR are allocated on the basis of actual direct labor hours used. The total costs of HR and the actual direct labor hours worked by each producing department are as follows: *$0.25 per direct labor hour plus $100,000. Required: 1. Allocate the HR costs to each producing department for Year 1 and Year 2 using the direct method with actual direct labor hours and actual HR costs. 2. Discuss the following statement: “The costs of human resource-related matters increased by 25 percent for Department A and decreased by over 16 percent for Department B. Thus, the manager of Department B must be controlling HR costs better than the manager of Department A.” 3. Can you think of a way to allocate HR costs so that a more reasonable and fair assessment of cost control can be made? Explain.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
BuyFind

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

Solutions

Chapter 7, Problem 18E
Textbook Problem

Kumar, Inc., evaluates managers of producing departments on their ability to control costs. In addition to the costs directly traceable to their departments, each production manager is held responsible for a share of the costs of a support center, the Human Resources (HR) Department. The total costs of HR are allocated on the basis of actual direct labor hours used. The total costs of HR and the actual direct labor hours worked by each producing department are as follows:

Chapter 7, Problem 18E, Kumar, Inc., evaluates managers of producing departments on their ability to control costs. In

*$0.25 per direct labor hour plus $100,000.

Required:

  1. 1. Allocate the HR costs to each producing department for Year 1 and Year 2 using the direct method with actual direct labor hours and actual HR costs.
  2. 2. Discuss the following statement: “The costs of human resource-related matters increased by 25 percent for Department A and decreased by over 16 percent for Department B. Thus, the manager of Department B must be controlling HR costs better than the manager of Department A.”
  3. 3. Can you think of a way to allocate HR costs so that a more reasonable and fair assessment of cost control can be made? Explain.

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Chapter 7 Solutions

Cornerstones of Cost Management (Cornerstones Series)
Ch. 7 - Why is the dual-rate charging method better than...Ch. 7 - Explain the difference between the direct method...Ch. 7 - The reciprocal method of allocation is more...Ch. 7 - What is a joint cost? How does it relate to...Ch. 7 - How do joint costs differ from other common costs?Ch. 7 - The expected costs for the Maintenance Department...Ch. 7 - The expected costs for the Maintenance Department...Ch. 7 - Valron Company has two support departments, Human...Ch. 7 - Refer to Cornerstone Exercise 7.3. Now assume that...Ch. 7 - Refer to Cornerstone Exercise 7.3. Now assume that...Ch. 7 - Refer to Cornerstone Exercise 7.3 and solve for...Ch. 7 - Orchard Fresh, Inc., purchases apples from local...Ch. 7 - Refer to Cornerstone Exercise 7.7. Assume that...Ch. 7 - Refer to Cornerstone Exercise 7.7. Assume that...Ch. 7 - A company manufactures three products, L-Ten,...Ch. 7 - Refer to Cornerstone Exercise 7.10. (Round...Ch. 7 - Classify each of the following departments in a...Ch. 7 - Classify each of the following departments in a...Ch. 7 - Identify some possible causal factors for the...Ch. 7 - Dr. Fred Poston, Dermatologist to the Stars, has a...Ch. 7 - Samantha and Rashida are planning a trip to Padre...Ch. 7 - Jeff McMillan owns a small neighborhood shopping...Ch. 7 - Kumar, Inc., evaluates managers of producing...Ch. 7 - Refer to the data in Exercise 7.18. When the...Ch. 7 - Jasmine Company manufactures both pesticide and...Ch. 7 - Refer to the data in Exercise 7.20. The company...Ch. 7 - Eilers Company has two producing departments and...Ch. 7 - Refer to the data in Exercise 7.22. The company...Ch. 7 - Refer to the data in Exercise 7.22. The support...Ch. 7 - Alomar Company manufactures four products from a...Ch. 7 - Refer to Exercise 7.25 and allocate the joint...Ch. 7 - Pacheco, Inc., produces two products, overs and...Ch. 7 - Minor Co. has a job order cost system and applies...Ch. 7 - A CPA would recommend changing from plantwide...Ch. 7 - A company uses charging rates to allocate service...Ch. 7 - Chester Company provided information on overhead...Ch. 7 - Which of the following statements is true? a. The...Ch. 7 - Biotechtron, Inc., has two research laboratories...Ch. 7 - AirBorne is a small airline operating out of...Ch. 7 - Duweynie Pottery, Inc., is divided into two...Ch. 7 - Macalister Corporation is developing departmental...Ch. 7 - Farleigh Petroleum, Inc., is a small company that...Ch. 7 - Welcome Inns is a chain of motels serving business...Ch. 7 - Sonimad Sawmill, Inc. (SSI), purchases logs from...Ch. 7 - House Corporation Board (HCB) of Tri-Gamma...

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