Solution-What are the shortcomings of the allocation formula

What are the shortcomings of the allocation formula

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Reference no: EM13875837

Allocation of Marketing and Administrative Costs; Profit SBUs Tilton Academy allocates market- ing and administrative costs to its three schools based on total annual tuition revenue for the schools. In 2009 the allocations (000s omitted) were as follows:

	Lower School	Middle School	Upper School	Total
Tuition revenue	$1,500	$500	$2,000	$4,000
Marketing and administration	375	125	500	$1,000

In 2010, the middle and upper schools experienced no change in revenues, but the lower school's tuition revenue increased to $1.9 million. Marketing and administrative costs rose to $1,250,000.

Required

1. Using revenue as an allocation base, how should the costs be allocated for 2010?

2. What are the shortcomings of this allocation formula?

Reference no: EM13875837

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What are the shortcomings of the allocation formula

Reference no: EM13875837

Reference no: EM13875837

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