(Step method) O’Reilly Real Estate classifies its operations into three departments: Commercial Sales, Residential Sales, and Property Management. The owner, Shannen O’Reilly, wants to know the full cost of operating each department. Direct costs of each department, along with several allocation bases associated with each, are as follows:

The service departments are shown in a benefits-provided ranking. O’Reilly has also selected the following allocation bases: number of employees/salespersons for Administration; dollars of assets employed for Accounting; and dollars of revenue for Promotion.

a. Using the step method, allocate the service department costs to the revenue¬ generating departments.

b. Which department is apparently the most profitable?LO1

AVAILABLE ALLOCATION BASES DIRECT Number Employees/ Dollars of Assets Dollars of COSTS Salespersons Employed Revenue Administration Accounting Promotion $ 750,000 10 $1,240,000 N/A 495,000 5 682,000 N/A 360,000 6 360,000 N/A Commercial Sales 5,245,000 21 500,000 $4,500,000 Residential Sales 4,589,510 101 725,000 9,500,000 Property Management 199,200 13 175,000 500,000