Question

In: Accounting

The personnel department at Dansford Company has $45,000 in budgeted costs for the coming period.

The personnel department at Dansford Company has $45,000 in budgeted costs for the coming period. Dansford is trying to determine whether to allocate these costs to the two production departments based on the number of employees or based on machine hours used in the department. Information about the production departments is given below:

Molding Engraving

Number of employees 15 35

Anticipated machine hours 600 400

Instructions:

Calculate the costs allocated to each of the production departments using each allocation base.
Which allocation base is preferable?

Expert Solution

Budgeted cost of personnel department = $45,000

Molding Engraving Total

Number of employees 15 35 50

Anticipated machine hours 600 400 1,000

1.

Cost allocation on the basis of Number of employees

Personnel department cost allocated to Molding = Budgeted cost of personnel department x Number of employees in Molding department/Total number of employees

= 45,000 x 15/50

= $13,500

Personnel department cost allocated to Engraving = Budgeted cost of personnel department x Number of employees in Engraving department/Total number of employees

= 45,000 x 35/50

= $31,500

Cost allocation on the basis of Anticipated machine hours

Personnel department cost allocated to Molding = Budgeted cost of personnel department x Anticipated machine hours in Molding department/Total number of Anticipated machine hours

= 45,000 x 600/1,000

= $27,000

Personnel department cost allocated to Engraving = Budgeted cost of personnel department x Anticipated machine hours in Engraving department/Total number of Anticipated machine hours

= 45,000 x 400/1,000

= $18,000

2.

Since personnel department deals with employees, hence budgeted costs of the personnel department, should be allocated on the basis of number of employees of the production departments.

ekkarill92 answered 1 year ago

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