Answer the following questions using the information below:
At the Todd Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.

-If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?
A)$24,000
B)$10,667
C)$102,400
D)$40,000

Question

Answer the following questions using the information below:
At the Todd Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.
  
-If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?
A)$24,000 
B)$10,667 
C)$102,400 
D)$40,000

Quizplus · Accepted Answer

If the number of employees is considered the cost driver, then the personnel costs will be allocated based on the number of employees in each department. Department A has 24 employees, so the personnel costs allocated to Department A would be:
$200,000 (total personnel costs) x (24 employees / 120 total employees) = $40,000 allocated to Department A
Therefore, the correct answer is A), $24,000 is not an option.

Best choice: 
The best choice is to use the number of new hires as the cost driver, based on the opinions gathered from the department managers. This would allocate personnel costs based on the activity that actually drives the costs, rather than a less accurate measure such as the number of employees.

Answer the Following Questions Using the Information Below