TCO6 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:
Financial Planning, 150 employees with total salaries of $10,000,000
Business Consulting 50 employees with total salaries of $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?