CHAPTER 13 Exercise 53

Leyh Management Co. classifies its operations into three departments: commercial sales, residential sales, and property management. The owner, Ellen Leyh, wants to know the full cost of operating each department. Direct departmental costs and several allocation bases associated with each follow:

Available Allocation Bases

		Number of
		Employees/	Assets
	Direct Costs	Salespersons	Employed	Revenue
Administration	1,500,000	20	2,480,000	N/A
Accounting	990,000	15	1,364,000	N/A
Promotion	720,000	12	720,000	N/A
Commercial Sales	10,490,000	45	900,000	10,000,000
Residential Sales	9,179,000	210	1,440,000	18,000,000
Property Management	398,400	18	540,000	2,000,000

The support departments are shown in a benefits-provided ranking. Leyh has selected the following allocation bases for each department: number of employees/salespersons for administration, dollars of assets employed for accounting, and dollars of revenue for promotion.

a. Use the direct method to allocate the support department costs to the revenue-generating departments. (Round proportions to the nearest whole percentage.)

b. Determine the operating income for each division.

c. Allocate the support department costs to the revenue-generating departments using the step method.

d. Which department is apparently the most profitable?