Exeter Group is a large retail company that has brick-and-mortar outlets throughout the Southeast. They have been in business for many years, but two years ago started an online sales channel to offset slowing in-store sales. The human resources (HR) departmen at Exeter handles tasks for the two divisions that make up Exeter: Retail and Online. Retail Division manages the company's traditiona business line. This business, although still profitable, is currently not growing and may be shrinking slightly. Online Division, on the other hand, has experienced double-digit growth from the beginning. The cost allocation system at Exeter allocates all corporate costs to the divisions based on a variety of cost allocation bases. HR cost are allocated based on the average number of employees in the two divisions. There are two basic activities in the HR Department. The first is employee maintenance (payroll administration, benefits, and so on), which is an ongoing activity and requires the same amount of work for each employee regardless of the employee's salary. The second, called turnover, handles new and departing employees, including all records and orientations (for new employees) and assurance of procedural integrity (for all departures). Virtually all of this activity occurs when employees are hired or leave the company. Assorted data for Exeter for the most recent year follow: Retail Employee maintenance Turnover Total Number of employees (average) Employees hired/leaving The HR Department incurred the following costs during the same year. 17,820 720 Online $ 4,120,000 4,880,000 $ 9,000,000 2,180 1,720 Total 20,000 2,440 Required: a. Under the current allocation system, what are the costs that will be allocated from HR to Retail Division? To Online Division? b. Suppose the company implements an activity-based cost system for HR with the two activities, employee maintenance and turnover. Use the average number of employees as the cost driver for employee maintenance costs and the average number of employees hired or leaving for turnover costs. What are the costs that will be allocated from HR to Retail? To Online?
Exeter Group is a large retail company that has brick-and-mortar outlets throughout the Southeast. They have been in business for many years, but two years ago started an online sales channel to offset slowing in-store sales. The human resources (HR) departmen at Exeter handles tasks for the two divisions that make up Exeter: Retail and Online. Retail Division manages the company's traditiona business line. This business, although still profitable, is currently not growing and may be shrinking slightly. Online Division, on the other hand, has experienced double-digit growth from the beginning. The cost allocation system at Exeter allocates all corporate costs to the divisions based on a variety of cost allocation bases. HR cost are allocated based on the average number of employees in the two divisions. There are two basic activities in the HR Department. The first is employee maintenance (payroll administration, benefits, and so on), which is an ongoing activity and requires the same amount of work for each employee regardless of the employee's salary. The second, called turnover, handles new and departing employees, including all records and orientations (for new employees) and assurance of procedural integrity (for all departures). Virtually all of this activity occurs when employees are hired or leave the company. Assorted data for Exeter for the most recent year follow: Retail Employee maintenance Turnover Total Number of employees (average) Employees hired/leaving The HR Department incurred the following costs during the same year. 17,820 720 Online $ 4,120,000 4,880,000 $ 9,000,000 2,180 1,720 Total 20,000 2,440 Required: a. Under the current allocation system, what are the costs that will be allocated from HR to Retail Division? To Online Division? b. Suppose the company implements an activity-based cost system for HR with the two activities, employee maintenance and turnover. Use the average number of employees as the cost driver for employee maintenance costs and the average number of employees hired or leaving for turnover costs. What are the costs that will be allocated from HR to Retail? To Online?
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter10: Forecasting Financial Statement
Section: Chapter Questions
Problem 9PC: The Home Depot is a leading specialty retailer of hardware and home improvement products and is the...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,