You are the Director of the Human Resources Division for a large Canadian corporation that a number of divisions located across the country. Part of your Division's mandate is to create and deliver a variety of professional development programs that can be used by the other divisions. You have created a separated department within your Division to look after the PD courses. The PD courses you provide are required to recover all of the PD department's costs so you charge the various divisions for the programs they use. The divisions have the option to use PD programs provided by other organizations (i.e. they are not required to use your programs). Currently you price your courses based on two components. First, the direct cost of the presenter is charged based on their calculated hourly salary rate (plus benefits) times the number of hours long the course is. All other costs are treated as overhead costs. The overhead costs are all grouped together and allocated to each course based on its length. After reviewing the various divisions PD usage statistics (that includes courses purchased from other sources) you notice that within certain categories of the PD programs the divisions are not using your courses compared to the external sources. While with some of the other categories the divisions are using your courses at a very high rate compared to external courses. Upon further investigation, you discover that you are charging some of your courses at a rate that is much lower than the external courses and some that are much higher. Required: You are considering going to an Activity Based Costing (ABC) method of allocating your overhead costs. What factors should you take into consideration when trying to identify the various "cost buckets" and what "cost drivers" could be associated with each cost bucket
You are the Director of the Human Resources Division for a large Canadian corporation that a number of divisions located across the country. Part of your Division's mandate is to create and deliver a variety of professional development programs that can be used by the other divisions. You have created a separated department within your Division to look after the PD courses. The PD courses you provide are required to recover all of the PD department's costs so you charge the various divisions for the programs they use. The divisions have the option to use PD programs provided by other organizations (i.e. they are not required to use your programs). Currently you price your courses based on two components. First, the direct cost of the presenter is charged based on their calculated hourly salary rate (plus benefits) times the number of hours long the course is. All other costs are treated as overhead costs. The overhead costs are all grouped together and allocated to each course based on its length. After reviewing the various divisions PD usage statistics (that includes courses purchased from other sources) you notice that within certain categories of the PD programs the divisions are not using your courses compared to the external sources. While with some of the other categories the divisions are using your courses at a very high rate compared to external courses. Upon further investigation, you discover that you are charging some of your courses at a rate that is much lower than the external courses and some that are much higher. Required: You are considering going to an Activity Based Costing (ABC) method of allocating your overhead costs. What factors should you take into consideration when trying to identify the various "cost buckets" and what "cost drivers" could be associated with each cost bucket
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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28. Kindly answer below:
Transcribed Image Text:You are the Director of the Human Resources Division for a large Canadian corporation that a number of divisions located across the
country. Part of your Division's mandate is to create and deliver a variety of professional development programs that can be used by
the other divisions. You have created a separated department within your Division to look after the PD courses. The PD courses you
provide are required to recover all of the PD department's costs so you charge the various divisions for the programs they use. The
divisions have the option to use PD programs provided by other organizations (i.e. they are not required to use your programs).
Currently you price your courses based on two components. First, the direct cost of the presenter is charged based on their
calculated hourly salary rate (plus benefits) times the number of hours long the course is. All other costs are treated as overhead
costs. The overhead costs are all grouped together and allocated to each course based on its length.
After reviewing the various divisions PD usage statistics (that includes courses purchased from other sources) you notice that within
certain categories of the PD programs the divisions are not using your courses compared to the external sources. While with some of
the other categories the divisions are using your courses at a very high rate compared to external courses. Upon further
investigation, you discover that you are charging some of your courses at a rate that is much lower than the external courses and
some that are much higher.
Required:
You are considering going to an Activity Based Costing (ABC) method of allocating your overhead costs. What factors should you
take into consideration when trying to identify the various "cost buckets" and what "cost drivers" could be associated with each cost
bucket
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