Fixed and Variable Cost Allocation
Kumar, Inc., evaluates managers of producing departments ontheir ability to control costs. In addition to the costs directlytraceable to their departments, each production manager is heldresponsible for a share of the costs of a support center, the HumanResources (HR) Department. The total costs of HR are allocated onthe basis of actual direct labor hours used. The total costs of HRand the actual direct labor hours worked by each producingdepartment are as follows:
| | Year 1 | Year 2 |
| Direct labor hours worked: |
| Department A | 33,000 | 34,000 |
| Department B | 36,000 | 34,000 |
| Total hours | 69,000 | 68,000 |
| Actual HR cost | $122,250 | $122,250 |
| Budgeted HR cost | 117,250* | 117,000* |
*$0.25 per direct labor hour plus $100,000.
When the capacity of the HR Department was originallyestablished, the normal usage expected for each department was18,000 direct labor hours. This usage is also the amount ofactivity planned for the two departments in Year 1 and Year 2.
Required:
1. Allocate the costs of the HR Departmentusing the direct method and assuming that the purpose is productcosting.
| Department A | Department B |
| Variable costs | $ | $ |
| Fixed costs | | |
| Total cost | $ | $ |
2. Allocate the costs of the HR Departmentusing the direct method and assuming that the purpose is toevaluate performance.
| Year 1 | | Year 2 |
| Department A | Department B | | Department A | Department B |
| Variable costs | $ | $ | | $ | $ |
| Fixed costs | | | | | |
| Total cost | $ | $ | | $ | $ |
