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

Orlando, the manager of the New York unit, is unhappy with the results of the controllers study. He asks the controller to develop separate rates for fixed and variable costs in the Personnel Department. The controller reports back to Orlando that the rates would be as follows:

Allocation based on Variable Rate Fixed Rate Total Rate

Employees $ 80 per employee $ 180 per employee $ 260 per employee

Transitions $ 2,060 per transition $ 4,015 per transition $ 6,075 per transition

Required: a. Orlando argues that New York should only be allocated the variable costs from this system, because the company would have to pay the fixed costs even if New York did not exist. Compute the cost allocated to each unit using the approach Orlando prefers.

2.

Upriver Parts manufactures two products, V-1 and V-2, at its River Plant. Selected data for an average month for the two products follow.

	V-1			V-2
Units produced		10,000			1,000
Direct materials cost per unit	$	2		$	4
Machine hours per unit		1			2
Production runs per month		80			40

Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow.

Machine depreciation	$	78,000
Setup labor		34,800
Material handling		17,760
Total	$	130,560

Required:

a. Compute the unit costs for the two products V-1 and V-2 using the current costing system at Upriver (using machine hours as the allocation basis). (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. Compute the unit costs for the two products V-1 and V-2 using the proposed ABC system at Upriver.