Problem

At the Todd Company, the cost of the personnel department has always been charged to production departments based upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new hires might be a better predictor of personnel costs.

Total personnel department costs are $320,000.

Department                       A          B            C
Number of employees         30         270        100
The number of new hires     8          12          5

a) If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to Department A?

b) If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to Department A?