Costs incurred in the main headquarters are as follows: Human resources (HR) costs$2,300,000Accounting department costs1,800,000Rent and depreciation640,000Other660,000Total costs$5,400,000TheFordupper management currently allocates this cost to the divisions equally. One of the division managers has done some research on activity-based costing and proposes the use of different allocation bases for the different indirectcosts−numberof employees for HR costs, total revenues for accounting department costs, square feet of space for rent and depreciation costs, and equal allocation among the divisions of "other" costs. Information about the three divisions follows: BreadCakeDoughnutsTotal revenues$21,200,000$4,700,000$13,200,000Direct costs14,000,0003,300,0007,000,000Segment margin$7,200,000$1,400,000$6,200,000Number of employees700200100Square feet of space8,0002,0006,0001.Allocate the indirect costs ofFordto each division equally. Calculate division operating income after allocation of headquarter costs.2.Allocate headquarter costs to the individual divisions using the proposed allocation bases. Calculate the division operating income after allocation. Comment on the allocation bases used to allocate headquarter costs.3.Which division manager do you think suggested this new allocation? Explain briefly. Which allocation do you think is "better"? ### Ford Bakery Cost Allocation Analysis**Overview:**Ford Bakery produces baked goods for grocery stores and operates three divisions: bread, cake, and doughnuts. Each division functions independently, while the main headquarters incurs indirect costs that must be distributed among these divisions.---#### Requirement 1: Equal Allocation of Indirect CostsThe first requirement is to allocate Ford's indirect costs equally across each division. The following table outlines the segment margin, allocated headquarters costs, and resultant operating income (loss) for each division:| | Bread | Cake | Doughnuts ||---------------|------------|------------|-----------|| **Segment Margin** | $7,200,000 | $1,400,000 | $6,200,000 || **Allocated Headquarters Costs** | $1,800,000 | $1,800,000 | $1,800,000 || **Operating Income (Loss)** | $5,400,000 | ($400,000) | $4,400,000 |---#### Requirement 2: Allocation Based on Proposed BasesIn the second requirement, headquarters costs are allocated using proposed allocation bases for each division. The table below presents a detailed breakdown of the headquarters costs, including human resources, accounting department costs, rent and depreciation, and other costs. It then calculates the operating income (loss) for each division:| | Bread | Cake | Doughnuts ||--------------------------------|--------------|-------------|-------------|| **Segment Margin** | $7,200,000 | $1,400,000 | $6,200,000 || **Allocated Headquarters Costs:** | | | || - Human Resources | $1,610,000 | $460,000 | $230,000 || - Accounting Department | $975,959 | $216,368 | $607,673 || - Rent and Depreciation | $320,000 | $80,000 | $240,000 || - Other | $180,000 | $180,000 | $180,000 || **Operating Income (Loss)** | $4,114,041 | $463,632 | $4,942,327 |**Notes:**- Operating losses are expressed with parentheses.- Allocation of costs is rounded to three decimal places.---

Name: Costs incurred in the main headquarters are as follows: Human resourc
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Description: Costs incurred in the main headquarters are as follows: Human resources (HR) costs$2,300,000Accounting department costs1,800,000Rent and depreciation640,000Other660,000Total costs$5,400,000TheFordupper management currently allocates this cost to the

Accounting department costs shall be allocated basis of the total revenues and other costs shall be divided equally among the departments.Allocation of HR costs Ratio = Total Accounting costs / Total Revenues = 1,800,000 / (21,200,000 + 4,700,000 + 13,200,000) = 1,800,000 / 3,91,00,000 = 0.046 Allocation: Revenue * Ratio Bread: 21,200,000 * 0.046 = $975200 Cake: 4,700,000 * 0.046 = $216200 Doughnuts: 13,200,000 * 0.046 = $607200 Allocation of Other Costs: Bread: 660,000 * 1/3 = $220,000 Cake: 660,000 * 1/3 = $220,000 Doughnuts: 660,000 * 1/3 = $220,000 Calculation of segment margin: Bread Cake Doughnut Segment margin 7200000 1400000 6200000 Allocated costs: HR 1610000 460000 230000 Accounting 975200 216200 607200 Rent and depreciation 320000 80000 240000 Other 220000 220000 220000 Operating Income/ (LOSS) 4074800 423800 4902800 Requirement 3: Cake division manager would have suggested as earlier it had negative segment income.

Ford Bakery makes baked goods for grocery stores, and has three divisions: bread, cake, and doughnuts. Each division is run and evaluated separately, but the main headquarters incurs costs that are indirect costs for the divisions. E (Click to view information for each division and the main headquarters.) Read the requirements. Requirement 1. Allocate the indirect costs of Ford to each division equally. Calculate division operating income after allocation of headquarter costs. (Enter operating losses with minus signs or parentheses.) Bread Cake Doughnuts Segment margin 2$ 7,200,000 $ 1,400,000 $ 6,200,000 Allocated headquarter costs 1,800,000 1,800,000 1,800,000 2$ 5.400.000 $ (400,000) $ 4,400,000 Operating income (loss) Requirement 2. Allocate headquarter costs to the individual divisions using the proposed allocation bases. Calculate the division operating income after allocation. (Round allocation proportions to three decimal places. Enter operating losses with minus signs or parentheses.) Bread Cake Doughnuts Segment margin $ 7,200,000 $ 1,400,000 $ 6,200,000 Allocated headquarter costs: Human resources 1,610,000 460,000 230,000 Accounting department 975959 216368 607673 Rent and depreciation 320.000 80,000 240,000 180000 180000 180000 Other 463632 4942327 Operating income (loss) 4114041

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Human resources (HR) costs	$2,300,000
Accounting department costs	1,800,000
Rent and depreciation	640,000
Other	660,000
Total costs	$5,400,000

	Bread	Cake	Doughnuts
Total revenues	$21,200,000	$4,700,000	$13,200,000
Direct costs	14,000,000	3,300,000	7,000,000
Segment margin	$7,200,000	$1,400,000	$6,200,000
Number of employees	700	200	100
Square feet of space	8,000	2,000	6,000

1.	Allocate the indirect costs of Ford to each division equally. Calculate division operating income after allocation of headquarter costs.
2.	Allocate headquarter costs to the individual divisions using the proposed allocation bases. Calculate the division operating income after allocation. Comment on the allocation bases used to allocate headquarter costs.
3.	Which division manager do you think suggested this new allocation? Explain briefly. Which allocation do you think is "better"?