Allocation of Marketing and Administrative Costs; Profit SBUs Chilton Day School allocates...

Allocation of Marketing and Administrative Costs; Profit SBUs 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?

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2. What are the shortcomings of this allocation formula?