Refer to the data in Exercise 7.18. When the capacity of the HR Department was originally established, the normal usage expected for each department was 20,000 direct labor hours. This usage is also the amount of activity planned for the two departments in Year 1 and Year 2.

In exercise Kumar, Inc., evaluates managers of producing departments on their ability to control costs. In addition to the costs directly traceable to their departments, each production manager is held responsible for a share of the costs of a support center, the Human Resources (HR) Department.

The total costs of HR are allocated on the basis of actual direct labor hours used. The total costs of HR and the actual direct labor hours worked by each producing department are as follows:

Required:
1. Allocate the costs of the HR Department using the direct method and assuming that the purpose is product costing.
2. Allocate the costs of the HR Department using the direct method and assuming that the purpose is to evaluate performance.

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Year 1 Year 2 Direct labor hours worked: Department A 24,000 36,000 60,000 $120,000 115,000 25,000 25,000 50,000 $120,000 112,500* Department IB Total hours Actual HR cost Budgeted HR cost