2. | Question : | (TCO 6) 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? |