The Human Resources department’s costs are allocated to the other departments based on the number of direct labor hours. The department’s expected fixed costs are £400,000 and its variable costs are £0.25 per direct labor hour. The Human Resources department has sufficient capacity such that fixed costs will not change with increased direct labor.

The expected annual usage of direct labor by other departments is:

a. What is the application rate for the Human Resources department’s costs?

b. What would the application rate be if Department B were closed?

c. Why would the managers of Departments A, C, and D be upset with the closure of Department B?

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A B C D Direct labor hours 100,000 500,000 250,000 150,000