Giardin Outdoors is a recreational goods retailer with two divisions: Online and Stores. The two divisions both use the services of the corporate Finance and Accounting (F&A) Department. Annual costs of the F&A Department total $5.2 million a year. Managers in the two operating divisions are measured based on division operating profits.

The following selected data are available for the two operating divisions:

Required

a. What is the F&A cost that is charged to each division if divisional revenues are used as the allocation basis?

b. What is the F&A cost that is charged to each division if the the number of transactions is used as the allocation basis?

c. Why would the manager of the Online Division be concerned with the choice of the allocation basis for F&A costs?

d. Why would the company allocate F&A costs?

Transcribed Image Text:

Online.... Stores.. Revenues ($000) $74,100 39,900 Transactions (000) 1,066.5 283.5