Pederson Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. $$\begin{array} { l r }
\text { Cafeteria } & 40 \
\text { Human Resources } & 60 \
\text { Machining } & 200 \
\text { Assembly } & 300
\end{array}$$ Pederson uses the direct method of cost allocation and allocates cost on the basis of employees. If Human Resources cost amounts to $1,800,000, how much of the department's cost would be allocated to Assembly?

Question

Pederson Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. $$\begin{array} { l r } 
\text { Cafeteria } & 40 \
\text { Human Resources } & 60 \
\text { Machining } & 200 \
\text { Assembly } & 300
\end{array}$$ Pederson uses the direct method of cost allocation and allocates cost on the basis of employees. If Human Resources cost amounts to $1,800,000, how much of the department's cost would be allocated to Assembly?

Quizplus · Accepted Answer

The Human Resources cost is allocated based on the number of employees. Assembly has 300 out of a total of 500 employees (60 in HR are not included in allocation). Therefore, the allocation to Assembly is $ \frac{300}{500} \times 1,800,000 = 1,080,000 $.

Pederson Company Has Two Service Departments (Cafeteria and Human Resources)