Tyler Corporation has two service departments, IT Department and HR Department,

Question

Tyler Corporation has two service departments, IT Department and HR Department, and two producing departments, A and B. The IT Department costs of $70,000 are allocated on the basis of standard service hours used. The HR Department costs of $14,000 are allocated on the basis of number of employees. The direct costs of Departments A and B are $11,000 and $42,000, respectively. Data on standard service-hours and number of employees are as follows:

IT Dept.
HR Dept.
Dept. A
Dept. B
Standard service hours used 100 200 750 250
Number of employees 6 12 30 30

Using the direct method, calculate the cost of the HR Department allocated to Department A.

Explanation / Answer

To get 7,000 you do (14000*30) / (30 + 30) = 7,000

IT HR Dept A Dept B Std service hours used               100 200 750 250 No of employees 6 12 30 30 Costs 70000 14000 Direct costs 11000 42000 Cost of HR department allocated to Department A 7000 7000 Using the direct method, the cost of the HR Department allocated to Department A is $7000

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