(Monetary measure allocation) Teasley Realty has two operating divisions: Rental and Sales. In March 2006, the firm...
Question:
(Monetary measure allocation) Teasley Realty has two operating divisions: Rental and Sales. In March 2006, the firm spent $25,000 for general company promotions (as opposed to advertisements for specific properties). Lisa Leslie, the corporate controller, now has the task of fairly allocating the pro¬ motion costs to the two operating divisions.
Leslie has reduced the potential bases for allocating the promotion costs to two alternatives: expected increase in divisional revenue from the promo¬ tions and expected increase in divisional profit from the promotions (before allocated promotion costs). The promotions are expected to have the follow¬ ing effects on the two divisions:
a. Allocate the total promotion cost to the two divisions using change in revenue.
b. Allocate the total promotion cost to the two divisions using change in profit before joint cost allocation.
C. Which of the two approaches is more appropriate? Explain. LO1.
Step by Step Answer:
Cost Accounting Foundations And Evolutions
ISBN: 9780324235012
6th Edition
Authors: Michael R. Kinney, Jenice Prather-Kinsey, Cecily A. Raiborn