At the Auric 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.
$$\begin{array}{l}
\text { Total personnel department costs are } \$ 287,500 \text {. }\
\begin{array} { l r r r }
\text { Department } & \underline { \mathbf { A } } & \underline { \mathbf { B } } & \underline { \mathbf { C } } \
\text { Number of employees } & 70 & 280 & 225 \
\text { Number of new hires } & 25 & 13 & 12
\end{array}
\end{array}$$
-If the number of employees is considered the cost driver,what amount of personnel costs will be allocated to Department A?
A) $35,000
B) $10,667
C) $140,000
D) $43,700

Question

At the Auric 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.
 $$\begin{array}{l}
\text { Total personnel department costs are } \$ 287,500 \text {. }\
\begin{array} { l r r r } 
\text { Department } & \underline { \mathbf { A } } & \underline { \mathbf { B } } & \underline { \mathbf { C } } \
\text { Number of employees } & 70 & 280 & 225 \
\text { Number of new hires } & 25 & 13 & 12
\end{array}
\end{array}$$
-If the number of employees is considered the cost driver,what amount of personnel costs will be allocated to Department A?
A) $35,000
B) $10,667
C) $140,000
D) $43,700

Quizplus · Accepted Answer

The number of employees is considered the cost driver, so the personnel costs will be allocated to each department based on the number of employees in that department. Department A has 70 employees, so it will be allocated 70/575 * $287,500 = $35,000 of personnel costs.

At the Auric Company, the Cost of the Personnel Department