Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 37

Consider a company with two producing departments and one service department. The service department distributes its costs to the producing departments on the basis of the number of employees in each department. If the costs in the service department are fixed, what effect would the addition of employees in one department have on the costs allocated to the other department Comment on the reasonableness of the situation.