Pederson uses the direct method of cost allocation and allocates cost on the basis of employees.If Human Resources cost amounts to $1,800,000,how much of the department's cost would be allocated to Machining?
A)$600,000.
B)$720,000.
C)$900,000.
D)$1,200,000.
E)Some other amount.

Question

Quizplus · Accepted Answer

Since Pederson uses the direct method of cost allocation and allocates cost on the basis of employees, we need to know the number of employees in the Human Resources and Machining departments to allocate the cost accurately. If that information is not given, we cannot determine the allocation based on the direct method. However, assuming that we are given the number of employees, we can allocate the cost proportionally based on the number of employees in each department. Let's say Machining has 30 employees and other departments have a total of 270 employees. Then, Machining would be allocated 1/10th (30/300) of the total Human Resources cost, which would be $180,000. Therefore, the correct answer is B.

Pederson Uses the Direct Method of Cost Allocation and Allocates