Acct 310 - Memo for Accounting

ACCT310-1104B-08 Managerial Accounting

Keith Smith

American Intercontinental University Online

Discussion Board Unit 2

I feel that expense was not evenly allocated within the two expanses. Each commercial company's retail arms are responsible for half of the cost to advertise this figure being 2.5M per. Each also should be responsible for sharing the warehousing expenses divided in half which would come to 1.5M each.

I would propose as an alternative assign the expenses based on actual business shares such as – expenses for advertising the annual sales would be the deciding factor. The responsibility for the commercial arm would become 150/170 or eighty eight percent and the retail arm would spend 20/170 or twelve percent. With this calculation the commercial arm would be responsible for 4.4M and 600K for the retail arm.

The commercial arm should pay seventy five percent of the actual expense, and the remaining twenty five percent would be covered by the retail branch. 3.75M would be covered by the commercial arm and 1.25M would be handled by the retail branch.

Aids in performance management of each section would be the determining factor for activity based cost allocation as the most accurate methodology in this example. Utilizing the traditional methodology allocating costs could lead to a possible disadvantage that could cause the company to fail to hold a competitive edge in the marketplace if one section is bearing the lion's share of expense. 4M of the costs incurred were allocated to the business in comparison utilizing the activity based cost methodology would be 1.338 this would account for the high level of sales activity in the unicycle business compared to the bicycle market. On a final note, the traditional method I find to be biased and could very