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. 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.” 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.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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:
Year 1 Year 2
Direct labor hours worked:
Department A 24,000 25,000
Department B 36,000 25,000
Total hours 60,000 50,000
Actual HR cost $120,000 $120,000
Budgeted HR cost 115,000* 112,500*
*$0.25 per direct labor hour plus $100,000.
Required:
- 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.
- 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.”
- 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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