Problem
Smith and Hawk Landscaping Company uses a centralized payroll department to support its 3 divisions. It incurs $45,000 year to run this department and allocates the cost of this department based upon the number of employees in each division. The detail is as follows:
Division Number of Employees
Residential Landscaping 50
Commercial Landscaping 120
Irrigation Services 30
Total 200
How much of the $45,000 should be allocated to each division?
It has been suggested that it would be easier to just allocate $15,000 to each division? While it is easier, why is this not a good approach?