Required information The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York 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 $560 per employee. Data for the fiscal year just ended show the following. Number of employees Number of new hires. Number of employees departing Allocation based on Employees Transitions Miami New York 1,260 Orlando, the manager of the New York unit, is unhappy with the results of the controller's study. He asks the controller to develop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to Orlando that the rates would be as follows: Miami New York 16 14 Variable Rate $ 80 per employee $2,060 per transition Total Allocated Cost 360 26 24 Fixed Rate $180 per employee $4,015 per transition. Required: a. Orlando argues that New York should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if New York did not exist. Compute the cost allocated to each unit using the approach Orlando prefers. Total Rate $ 260 per employee $ 6,075 per transition.
Required information The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York 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 $560 per employee. Data for the fiscal year just ended show the following. Number of employees Number of new hires. Number of employees departing Allocation based on Employees Transitions Miami New York 1,260 Orlando, the manager of the New York unit, is unhappy with the results of the controller's study. He asks the controller to develop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to Orlando that the rates would be as follows: Miami New York 16 14 Variable Rate $ 80 per employee $2,060 per transition Total Allocated Cost 360 26 24 Fixed Rate $180 per employee $4,015 per transition. Required: a. Orlando argues that New York should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if New York did not exist. Compute the cost allocated to each unit using the approach Orlando prefers. Total Rate $ 260 per employee $ 6,075 per transition.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required information
The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and
New York. The Miami unit is the original unit of the company and is well established. The New York 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 $560 per employee. Data for the fiscal year just ended show the
following.
Number of employees
Number of new hires
Number of employees departing
Allocation based on
Employees
Transitions
Orlando, the manager of the New York unit, is unhappy with the results of the controller's study. He asks the controller to develop
separate rates for fixed and variable costs in the Personnel Department. The controller reports back to Orlando that the rates would be
as follows:
Miami
1,260
16
14
Miami
New York
Variable Rate
$ 80 per employee
$2,060 per transition
New York
360
26
24
Total Allocated Cost
Fixed Rate
$ 180 per employee
$4,015 per transition
Required:
a. Orlando argues that New York should only be allocated the variable costs from this system, because the company would have to
pay the fixed costs even if New York did not exist. Compute the cost allocated to each unit using the approach Orlando prefers.
Total Rate
$ 260 per employee
$ 6,075 per transition
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