=+6-25 KK Cost allocation to divisions OBJECTIVE 2 Tusk Ltd has three divisions: Pulp, Paper and Fibres. Tusk Ltd’s new management accountant, Shaun Peters, is reviewing the allocation of fixed corporate overhead costs to the three divisions. He is presented with the following information for each division for 2013:

1 2

3 4

5 6

7 8

A B C D Pulp Paper Fibres Revenues 8 500 000 17 500 000$ 24 000 000$

Direct manufacturing costs 4 100 000 8 600 000 11 300 000 Division administrative costs 2 000 000 1 800 000 3 200 000 Division margin 2 400 000

$

$ 7 100 000$ 9 500 000$

Number of employees 350 250 400 Floor space (square metres) 3 251.5 2 229.6 6 131.4 Until now, Tusk Ltd has allocated fixed corporate overhead costs to the divisions on the basis of division margins. Shaun asks for a list of costs that comprise fixed corporate overhead and suggests the following new cost-allocation bases:

1 2

3 4

5 F G H Suggested allocation bases Human resource management 1 800 000$ Number of employees Organisation 2 700 000 Floor space (square metres)

Company administration 4 500 000 Division administrative costs Total 9 000 000$

Fixed corporate overhead costs Required 1 Allocate 2013 fixed corporate overhead costs to the three divisions using division margin as the cost-allocation base. What is each division’s operating profit margin percentage (division margin minus allocated fixed company overhead costs as a percentage of revenues)?