The Personnel Department at LastCall Enterprises handles many administrative tasks for the two divisions that make up LastCall: LaidBack and StressedOut. LaidBack division manages the company’s traditional business line. This business, although lucrative, is currently not growing. StressedOut, on the other hand, is the company’s new business, which has experienced double-digit growth for each of the last three years.
The cost allocation system at LastCall allocates all corporate costs to the divisions based on a variety of cost allocation bases. Personnel costs are allocated based on the average number of employees in the two divisions.
There are two basic activities in the Personnel Department. The first, called employee maintenance, manages employee records. Virtually all of this activity occurs when employees are hired or leave the company. The other activity is payroll, which is an ongoing activity and requires the same amount of work for each employee regardless of the employee’s salary.
Assorted data for LastCall for the last year follow.
LaidBack | StressedOut | Total | |
Number of employees (average) | 100 | 25 | 125 |
Employees hired/leaving | 5 | 10 | 15 |
The Personnel Department incurred the following costs during the year.
Employee maintenance | $ | 90,000 |
Payroll | 25,000 | |
Total | $ | 115,000 |
Required:
a. Under the current allocation system, what are the costs that will be allocated from personnel to LaidBack? To StressedOut?
|
b. Suppose the company implements an
activity-based cost system for personnel with the two activities,
employee maintenance and payroll. Use the number of employees
hired/leaving as the cost driver for employee maintenance costs and
the average number of employees for payroll costs. What are the
costs that will be allocated from personnel to LaidBack? To
StressedOut?
|
a. | ||
LaidBack | StressedOut | |
Allocated cost |
92000 [ 115000*100/125 ] |
23000 [ 115000*25/125 ] |
b. | ||
LaidBack | StressedOut | |
Employee maintenance |
30000 [ 90000*5/15 ] |
60000 [ 90000*10/15 ] |
Payroll |
20000 [ 25000*100/125 ] |
5000 [ 25000*25/125 ] |
The Personnel Department at LastCall Enterprises handles many administrative tasks for the two divisions that make...
The Personnel Department at LastCall Enterprises handles many administrative tasks for the two divisions that make up LastCall: LaidBack and StressedOut. LaidBack division manages the company’s traditional business line. This business, although lucrative, is currently not growing. StressedOut, on the other hand, is the company’s new business, which has experienced double-digit growth for each of the last three years. The cost allocation system at LastCall allocates all corporate costs to the divisions based on a variety of cost allocation bases....
The Personnel Department at LastCall Enterprises handles many administrative tasks for the two divisions that make up LastCall: Laidback and StressedOut. LaidBack division manages the company's traditional business line. This business, although lucrative, is currently not growing. Stressed Out, on the other hand, is the company's new business, which has experienced double-digit growth for each of the last three years. The cost allocation system at LastCall allocates all corporate costs to the divisions based on a variety of cost allocation...
The Personnel Department at Lastal Enterprises handies many administrative basis for the two sons that make uplasia LadBack and stressedut Laack vion manages the company's t onal business e This business, although lucrative is currently not growing Stressedout on the other hand is the company's new business which has experienced coedigt growth for each of the last three years The cost allocation system at Las call alocales al corporate costs to the divisions based on a variety of cost a...
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