Pulp $19,600,000 Paper $34,200,000 Fibers Revenues $51,000,000 Direct manufacturing costs Division administrative costs 7,000,000 15,600,000 22,200,000 6,600,000 $ 6,000,000 600 4,000,000 9,400,000 Division margin Number of employees Floor space (square feet) $14,600,000 300 $19,400,000 1,100 106,400 70,680 202,920 Until now, Bergen Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Fisher asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases: Fixed Corporate-Overhead Costs Suggested Allocation Bases $ 4,600,000 Number of employees Human resource management Facility Corporate administration 6,400,000 Floor space (square feet) 9,200,000 Division administrative costs Total $20,200,000 1. Allocate 2017 fixed corporate-overhead costs to the three divisions using division margin as the alloca- tion base. What is each division's operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)? 2. Allocate 2017 fixed costs using the allocation bases suggested by Fisher. What is each division's oper- ating margin percentage under the new allocation scheme? Required 3. Compare and discuss the results of requirements 1 and 2. If division performance incentives are based on operating margin percentage, which division would be most receptive to the new allocation scheme? Which division would be the least receptive? Why? 4. Which allocation scheme should Bergen Corporation use? Why? How might Fisher overcome any objec- tions that may arise from the divisions?
Pulp $19,600,000 Paper $34,200,000 Fibers Revenues $51,000,000 Direct manufacturing costs Division administrative costs 7,000,000 15,600,000 22,200,000 6,600,000 $ 6,000,000 600 4,000,000 9,400,000 Division margin Number of employees Floor space (square feet) $14,600,000 300 $19,400,000 1,100 106,400 70,680 202,920 Until now, Bergen Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Fisher asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases: Fixed Corporate-Overhead Costs Suggested Allocation Bases $ 4,600,000 Number of employees Human resource management Facility Corporate administration 6,400,000 Floor space (square feet) 9,200,000 Division administrative costs Total $20,200,000 1. Allocate 2017 fixed corporate-overhead costs to the three divisions using division margin as the alloca- tion base. What is each division's operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)? 2. Allocate 2017 fixed costs using the allocation bases suggested by Fisher. What is each division's oper- ating margin percentage under the new allocation scheme? Required 3. Compare and discuss the results of requirements 1 and 2. If division performance incentives are based on operating margin percentage, which division would be most receptive to the new allocation scheme? Which division would be the least receptive? Why? 4. Which allocation scheme should Bergen Corporation use? Why? How might Fisher overcome any objec- tions that may arise from the divisions?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Cost allocation to divisions. Bergen Corporation has three divisions: pulp, paper, and bers. Bergen’s new controller, David Fisher, is reviewing the allocation of xed corporate-
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education