McDougle Real Estate classifies its operations into three departments: Commercial Sales, Residential Sales, and Property Management. The owner, William McDougle, wants to know the full cost of operating each department. Direct costs of each department, along with several allocation bases associated with each, are as follows:
|
AVAILABLE ALLOCATION BASES |
||||
|
Direct |
Number Employees/ |
Dollars of Assets |
Dollars of |
|
|
Costs |
Salespersons |
Employed |
Revenue |
|
|
Administration |
$750,000 |
10 |
$1,240,000 |
n/a |
|
Accounting |
495,000 |
5 |
682,000 |
n/a |
|
Promotion |
360,000 |
6 |
360,000 |
n/a |
|
Commercial Sales |
5,245,000 |
21 |
500,000 |
$4,500,000 |
|
Residential Sales |
4,589,510 |
101 |
725,000 |
9,500,000 |
|
Property Management |
199,200 |
13 |
175,000 |
500,000 |
The service departments are shown in a benefits provided ranking. McDougle has also selected the following allocation bases: number of employees/salespersons for Administration; dollars of assets employed for Accounting; and dollars of revenue for Promotion.
a. Using the step method, allocate the service department costs to the revenue generating departments.
b. Which department is apparently the most profitable?