2010-10-21_042121_premium_2

2010-10-21_042121_premium_2 - Question 1 Booth Financial...

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Question 1 Booth Financial Services, LLC has two revenue producing departments, Financial Planning and Business Consulting. The accounting department is trying to determine the best method to allocate $1,000,000 of common costs (secretarial staff, reception personnel, etc), either by salary or number of employees. Information on the revenue departments are as follows: Department Employees Salaries Financial Planning 150 employees $10,000,000 Business Consulting 50 employees $5,000,000 (a) Allocate the $1,000,000 common costs to the two revenue departments using both methods. (b) Why are allocations called arbitrary? a. Allocation Base Financial Planning Business Consulting Proportion Amount Proportion Amount Salaries .6667 $666,667 .33 $333,333 Headcount .75 $750,000 .25 $250,000 b. Both headcount and salary could be used as allocation bases, but they result in very different allocations. This suggests that in many cases allocations are somewhat arbitrary.
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2010-10-21_042121_premium_2 - Question 1 Booth Financial...

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