Question
In: Accounting
Wilke Realty separates its activities into two operating divisions: Rentals and Sales. In March, the firm...
Wilke Realty separates its activities into two operating
divisions: Rentals and Sales.
In March, the firm spent $52,000 for general company
promotions (as opposed to
advertisements for specific properties). John, the corporate
controller, has decided to
allocate general promotion costs to the two operating
divisions. He is considering
whether to base his allocations on the (1) expected increase
in divisional revenue
from the promotions or (2) expected increase in divisional
profit from the promotions
(before allocated promotion costs). General promotions had the
following effects on
the two divisions:
Rentals Sales
Increase in divisional revenue $1,232,000 $168,000
Increase in profit (before allocated promotion costs) 167,200
136,800
a. Allocate the total promotion cost to the two divisions
using change in revenue.
Allocated Cost
Rental Answer
Sales Answer
Total Answer
b. Allocate the total promotion cost to the two divisions
using change in profit before
joint cost allocation.
Allocated Cost
Rental Answer
Sales Answer
Total Answer
Solutions
Expert Solution
Question 1
| Particulars. | Allocated Cost |
| Rental | 45,760 |
| Sales | 6,240 |
| Total Costs | 52,000 |
Working Notes
Increase in Revenue of Rentals = $ 12,32,000
Increase in Revenue of Sales = $ 1,68,000
Total Increase in Sales Revenue = Increase in Revenue of Rentals + Increase in Revenue of Sales
= 12,32,000 + 1,68,000
= $ 14,00,000
Cost Allocation to Rental = General Promotion Costs * Increase in Revenue for Rental / Total Increase in Sales Revenue
= 52,000 * 12,32,000 / 14,00,000
= $ 45,760
Cost Allocation to Sales = General Promotion Costs * Increase in Revenue for Sales / Total Increase in Sales Revenue
= 52,000 * 168,000 / 14,00,000
= $ 6,240
Question 2
| Particulars. | Allocated Cost |
| Rental | 28,600 |
| Sales | 23,400 |
| Total Costs | 52,000 |
Working Notes
Increase in Profit of Rentals = $ 167,200
Increase in Profit of Sales = $ 136,800
Total Increase in Profit = Increase in Profit of Rentals + Increase in Profit of Sales
= 167,200 + 136,800
= $ 304,000
Cost Allocation to Rental = General Promotion Costs * Increase in Profit for Rental / Total Increase in Profit
= 52,000 * 167,200 / 304,000
= $ 28,600
Cost Allocation to Sales = General Promotion Costs * Increase in Profit for Sales / Total Increase in Profit
= 52,000 * 136,800 / 304,000
= $ 23,400
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