What does the allocation in and out means

International Tennis (IT) Corporate, in New York, has two primary service divisions, Human Resources (HR) and Information Technology (Tech). The service divisions have never been allocated to the operating divisions Sales (London, England) and Production (Guangzhou, China). John, the President of IT, has been reworking the performance measurement system with the input of the two operating company executives.

John: I have been reading that it makes sense to allocate costs from the corporate division to the operating entities. Luis: Here is a detail of what we are spending at corporate. I am trying to be transparent here; we are all in this together: Human Resources: $250,000 Researching applicable hiring laws and practices in relevant countries, identifying candidates, virtual interviewing, onboarding new hires, supervision of annual reviews, handling all terminations. Information Technology: $500,000 Identifying new software/hardware, working with operating units and corporate personnel to implement, HELP line, designing and implementing training programs in all countries.Ensure recent new software laws between China and the US are adhered to.

ACTUAL RESULTS JANUARY THROUGH JUNE 2021

	China	London	New York	Total IT
Sales	18,000,000	20,000,000	0	38,000,000
Cost of sales	12,000,000	12,000,000	0	24,000,000
Gross Margin	6,000,000	8,000,000	0	14,000,000
Selling expenses	350,000	5,000,000	0	5,350,000
General and Admin	1,600,000	500,000	0	3,100,000
Operating Income	4,050,000	2,500,000	(1,000,000)	50,000,000

The divisions have gathered the following data per your request. HR will be allocated based on the number of employees and Tech will be allocated based on the number of software packages run at each location.

You gather the following information for the 12 months ended 12/31/20

	# of employees	# of software packages run
Human Resources	30	75
Information Technology	50	450
London	100	175
China	200	600

Create a divisional financial statement for direct method allocation using the following format.

HR. Tech. Other Corporate. Edinburgh. Lucerne.

Total Revenues

Total Costs

Allocations in

Less: Allocation out

Net profit