I need help with this question: Booth Financial Services, LLC has two revenue pr
ID: 2371095 • Letter: I
Question
I need help with this question:
Booth Financial Services, LLC has two revenue producing departments, Financial Planning and Business consulting. The accounting department is trying to determine the bes method to allocate $1,000,000 of common cost (Secretarial staff, reception, personel, etc) either by salary or number of employees. Information on the revenue department are as follows:
Depatment Employees Salaries
Financial planning 150 employee 10,000,000
Business consulting 50 employees 5,000,000
A. Allocate the 1,000,000 common cost to the two revenue departments using both methods
B. Why are the allocations called arbitary
Explanation / Answer
(a) Allocate the $1,000,000 common costs to the two revenue departments using both methods.
Salary method: Financial Planning 75%, Business Consulting 25%
Employee method: Financial Planning 2/3, Business Consulting 1/3.
(b) Why are allocations called arbitrary?
Although data may be gathered to select the best method of allocation, it is still subject to individual judgment or preference