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Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division: Acme Dune Stark Brothers $16,500,000 13,800,000 $ 2,700,000 1,500 Revenues $23,400,000 $25,500,000 $18,600,000 12,300,000 $13,200,000 12,000 Direct costs Segment margin Number of employees 15,900,000 $ 7,500,000 6,000 12,900,000 $ 5,700,000 4,500

Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division: Acme Dune Stark Brothers $16,500,000 13,800,000 $ 2,700,000 1,500 Revenues $23,400,000 $25,500,000 $18,600,000 12,300,000 $13,200,000 12,000 Direct costs Segment margin Number of employees 15,900,000 $ 7,500,000 6,000 12,900,000 $ 5,700,000 4,500

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Which allocation base do you think the manager of the Brothers division would prefer? Explain

Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division: Acme Dune Stark Brothers $16,500,000 13,800,000 $ 2,700,000 1,500 Revenues $23,400,000 $25,500,000 $18,600,000 12,300,000 $13,200,000 12,000 Direct costs Segment margin Number of employees 15,900,000 $ 7,500,000 6,000 12,900,000 $ 5,700,000 4,500
Transcribed Image Text:Cost allocation and decision making. Reidland Manufacturing has four divisions: Acme, Dune, Stark, and Brothers. Corporate headquarters is in Minnesota. Reidland corporate headquarters incurs costs of $16,800,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division: Acme Dune Stark Brothers $16,500,000 13,800,000 $ 2,700,000 1,500 Revenues $23,400,000 $25,500,000 $18,600,000 12,300,000 $13,200,000 12,000 Direct costs Segment margin Number of employees 15,900,000 $ 7,500,000 6,000 12,900,000 $ 5,700,000 4,500
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