Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 5

Direct Method of Support Department Cost Allocation
Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly.

The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Valron Company uses the direct method of support department cost allocation.
Required:
1. Calculate the allocation ratios for the four departments using the direct method.
2. Using the direct method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments.
3. What if the General Factory Department had 40 employees? How would that affect the allocation of Human Resources Department costs to the Fabricating and Assembly departments?