Tilton Academy allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools. In 2009 the allocations (000s omitted) were as follows:

	Lower School	Middle School	Upper School	Total
Tuition revenue	$1,500	$500	$2,000	$4,000
Marketing and administration	$375	$125	$500	$1,000

In 2010, the middle and upper schools experienced no change in revenues, but the lower school’s tuition revenue increased to $1.9 million. Marketing and administrative costs rose to $1,250,000.

Required
1. Using revenue as an allocation base, how should the costs be allocated for 2010?
2. What are the shortcomings of this allocationformula?

Transcribed Image Text:

In 2010, the middle and upper schools experienced no change in revenues, but the lower school's tui ti on revenue increased to S1.9 million. Marketing and administrative costs rose to S1,250,000