Question

The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York unit is new, much like a start-up company. The costs of the Personnel Department are allocated to each unit based on the number of employees in order to determine unit profitability. The current rate is $560 per employee. Data for the fiscal year just ended show the following:

	Miami		New York
Number of employees	1,260		360
Number of new hires	16		26
Number of employees departing	14		24

Required:

a. Compute the cost allocated to each unit using the current allocation system.

b. Livan, the manager of the Miami unit, is unhappy with the allocation from Personnel. He believes that he gets little benefit other than the occasional hire and termination help. He asks the controller’s office to estimate the amount of Personnel Department cost associated with routine personnel matters (benefits, and so on) and those associated with hiring employees and assisting with departing employees (transitions). The controller responds that if they separated the overhead costs on this basis, the rates would be $260 per employee for routine matters and $6,075 for each transition (each hiring and each departure counts as one transition).

Recompute the costs allocated to each unit using the separate rates for routine and transitional matters.

Answer 1