7.2

Bethany Corporation has three divisions: pulp, paper, and fibers. Bethany's new controller, Harry Croft, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2017: (Click the icon to view the data.) Until now, Bethany Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Croft asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases: (Click the icon to view the fixed corporate overhead and new allocation bases.) Read the requirements. fixed corporate-overhead costs as a percentage of revenues)? Enter operating margin percentages to one decimal, X.X\%.) Requirements Data table 1. Allocate 2017 fixed corporate-overhead costs to the three divisions using division margin as the allocation 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 Croft. What is each division's operating margin percentage under the new allocation scheme? 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 Bethany Corporation use? Why? How might Croft overcome any objections that may arise from the divisions? Data table