Explain why are allocations called arbitrary

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Reference no: EM13129274

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?

Reference no: EM13129274

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