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Question 2.

PMC LLP are the one of the top 100 UK accounting firms by fee income. They have structured themselves as having three main divisions in the UK and a Head Office based in London. They been having problems working out appropriate costing for there three divisions and have the following details:

Question 2.

PMC LLP are the one of the top 100 UK accounting firms by fee income. They have structured themselves as having three main divisions in the UK and a Head Office based in London. They been having problems working out appropriate costing for there three divisions and have the following details:

	Division A	Division B	Division C	Head Office
Clients	2 500	4 000	1 200
Sales	20 m	50 m	15 m
Direct costs	-10 m	-30 m	- 5 m
Overheads
Legal				-1 700 000
IT				-3 500 000
Marketing				-1 200 000
Cost Drivers
Contract discussions	400	300	150
Targeted marketing campaigns	25	30	45
Computers/laptops	100	200	300

REQUIRED:.

Work out the profitability of each division - 1. Absorbing Head office costs using client numbers; 2. Absorbing Head office costs using the cost drivers. Evaluate the difference between absorbing costs per client and Activity Based Costing.

REQUIRED:.

Work out the profitability of each division - 1. Absorbing Head office costs using client numbers; 2. Absorbing Head office costs using the cost drivers. Evaluate the difference between absorbing costs per client and Activity Based Costing.