QUESTION:

Using the Direct Method, what is the amount of service cost allocated to Event Planning?

A - $550,000

B - $790,000

C - $1,000,000

D - $1,050,000

Entertainment 720 is an entertainment conglomerate, consisting of two departments: Sales Department, headed by Jean-Ralphio, and Event Planning, headed by Tom. Recently, E720 decided to hire an Accountant, Ben. They also have a corporate jet both for Event Planning and Accounting related travel. Jean-Ralphio, for reasons that might be obvious, is not allowed to use the corporate Jet. Ben, having taken a managerial accounting class, decided to investigate the costs and structure associated with the service departments of Entertainment 720, which he decided were his Accounting department (costing $100,000 per year), and the Jet (costing $1,000,000 per year). The departments receive the following percentage of service: Sales Event Planning 40% 40% 75% 20% Accounting $100,000 / yr Jet $1,000,000 / yr 25% The service costs are allocated based on the percentages shown. No other costs should be considered for this