Chilton Day School allocates marketing and administrative costs to its three schools based on total annual tuition revenue for the schools. Last year the allocations (000s omitted) were as follows:

In the current year, the middle and high schools experienced no change in revenues, but the preschool€™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 the current year?

2. What are the shortcomings of this allocation formula?

Transcribed Image Text:

Preschool Middle School High School Total $5,500 1,000 Tultion revenue Marketing and administration $1,500 275 $1,800 325 $2,200 400