Question

Munchies Financial Services has two divisions, Financial Planning and Business Consulting. The firm’s accountants are in the process of selecting an allocation base to allocate centrally provided personnel costs to the divisions. Two allocation bases have been proposed: salary and headcount (number of employees). Personnel costs are expected to be $1,410,000. The following data relate to the allocation:

		Financial planning			Business Consulting
Salaries		$14,888,400			$4,701,600
Headcount		182			78

Prepare a schedule showing the allocations to the two divisions using each allocation base.

Allocation Base		Financial Planning		Business Consulting
Salaries		$		$
Headcount		$		$

Answer 1

Allocation base	Financial planning	Business consulting
Salaries	$ 1,071,600	$ 338,400
	($ 14,888,400 / ( $ 14,888,400 + $ 4,701,600 ) x $ 1,410,000          = $ 14,888,400 / $ 19,590,000 x $ 1,410,000          =     0.76 x 1,410,000	( $ 4,701,600 / ( $ 14,888,400 + $ 4,701,600 ) x $ 1,410,000        = ($ 4,701,600 /   $ 19,590,000) x 1,410,000        = 0.24 x $ 1,410,000
Headcount	$ 987,000	$ 423,000
	182 / ( 182 + 78 ) x $ 1,410,000        = 182 / 260 x   $ 1,410,000         =   0.7 x $ 1,410,000	182 / ( 182 + 78 ) x $ 1,410,000        = 78 / 260 x   $ 1,410,000         = 0.30 x $ 1,410,000