- Suppose you are the manager of a widget-production company. Thecompany’s two support departments, Purchasing and Human Resources, arecurrently allocated amongst its three manufacturing departments:Laminating, Fabricating, and Assembling. Currently, the supportdepartment’s costs are divided equally among the three manufacturingdepartments. The company has conducted an analysis using the number ofemployees in the manufacturing departments as the activity driver. Theresults of the analysis indicate Fabricating would receive 50% of thetotal costs of Purchasing and Human Resources, Laminating would receive30%, and Assembling would receive 20%. As a manager, would you suggestthe firm adopt the new activity-driven allocations or retain the currentallocation method? Choose a method of allocation and provide yourrationale. Identify at least two additional cost drivers that could beused to allocate the costs of the two support departments and explainthe rationale you used to select the additional cost drivers.
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