Reference no: EM132669116

Landscaping Matters, a landscape gardening business, allocates advertising expenses to its two services, Little Lawns and Corporate Solutions. It uses sales as the cost driver. For the current year the sales for Little Lawns are estimated to be $150 000 and for Corporate Solutions $750 000. The total advertising expenses are budgeted at $40 000.

Required:

Problem 1. Calculate the budgeted/estimated indirect cost (allocation) rate for the advertising expenses. Please show all workings

Problem 2. There are three different cost allocation methods that an organisation can use; direct, step-down and reciprocal. What would you consider when recommending which method an organisation should use?