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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

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?

Jun 24 2020 View more View Less

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