(Step method) Leyh Management Co. classifies its operations into three departments: commercial sales, residential sales, and property management. The owner, Ellen Leyh, wants to know the full cost of operating each department. Direct departmental costs and several allocation bases associated with each follow:
|
AVAILABLE ALLOCATION BASES |
||||
|
|
Number of |
|
|
|
|
Direct Costs |
Employees/ Salespersons |
Assets Employed |
Revenue |
|
|
Administration |
$ 1,500,000 |
20 |
$2,480,000 |
n/a |
|
Accounting |
990,000 |
15 |
1,364,000 |
n/a |
|
Promotion |
720,000 |
12 |
720,000 |
n/a |
|
Commercial sales |
10,490,000 |
45 |
900,000 |
$10,000,000 |
|
Residential sales |
9,179,000 |
210 |
1,440,000 |
18,000,000 |
|
Property management |
398,400 |
18 |
540,000 |
2,000,000 |
The support departments are shown in a benefits provided ranking. Leyh has selected the following allocation bases for each department: number of employees/salespersons for administration, dollars of assets employed for accounting, and dollars of revenue for promotion.
a. Use the step method to allocate the support department costs to the revenue generating departments.
b. Which department is apparently the most profitable?