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Information about Synergy's 2021 operating performance are provided below (in thousands $). Team 1 Team 2 Team 3 Purposeful Assets Under Management $1,318,400 $995,600 $825,000
Information about Synergy's 2021 operating performance are provided below (in thousands $). Team 1 Team 2 Team 3 Purposeful Assets Under Management $1,318,400 $995,600 $825,000 $3,139,000 Revenue $9,558 $7,965 $5,610 $23,133 Directly Traced Variable Costs Travel 525 1,021 2,159 3,705 Direct Marketing 287 263 118 667 Office Supplies and Stationary 181 369 86 636 Admin Personel Hourly 265 475 200 9400 Other Variable Costs 56 48 37 141 Directly Traced Fixed Costs Sales Personel Salaries 1,230 1,520 823 3,573 Admin Personel Salaries 286 547 425 1,258 Overhead Allocation 3,498 2,641 2,189 8,328 Segement Company Profit $ 3,231 $ 1,081 $ (427) $ 3,885 Synergy's current overhead allocation system allocates all overhead based on % of assets under management (AUM). David William, Synergy's CFO has proposed to use an activity based costing (ABC) method to allocate some of the overhead to each team and has already separated overhead into different categories and picked overhead drivers for each category: Overhead Cost OH Amount Cost Driver Team 1 Team 2 Team 3 HR and Benefits $1,380,000 # of full-time employees 16 18 11 Companywide Marketing $1,530,000 # of clients 115 95 65 IT Expenses $1,780,000 $ Revenue 9,558 7,965 5,610 Real Estate and Maintenance $2,580,000 Evenly by department 1 1 1 Misc OH $1,058,000 AUM $1,318,400 $995,600 $825,000 Question #1: Overhead Allocation A) Using the information provided, calculate the overhead allocation rates for each overhead cost category. Using the new ABC allocation system, recalculate the segment profit for each of the three teams and the company as a whole. B) As an alternative to the proposed ABC cost allocation, the managers of the three teams suggested that Real Estate and Maintenance expenses be allocated based on AUM and Misc. Corporate Overhead not be allocated to the teams (instead taking the charge only at the company level). Recalculate each segment's profit and the total company profit using this alternative method. C) Which one of the two ABC methods do you think is most appropriate (2-4 sentences)
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