BN 7 M PS-19: RBB Brands You are working on a special assignment as a financial analyst for the president of household prod- ucts of RBB Brands, RBB Brands is a large $4 billion diversified consumer products firm. RBB has two divisions, household products and foods, each headed by a president. Each division is evaluated as a profit center. The senior managers of each division receive bonuses paid out of a pool equal to I percent of the division's accounting profits. Both divisions receive services from two corporate service departments: engineering and maintenance. The president of household products attended a meeting at which the corporate controller made a presentation proposing that the two divisions accounting profits be charged for engineering and maintenance services, Table I summarizes each division's use of the two service departments, as well as each service department's use of the other service department (as well as its own use). The controller then distributed Tables 2 and 3. He explained that each division would be charged for the hours of maintenance and engineering it actually used. The charge per hour would be based on the allocated cost of the service department. Table 2 reports the allocation of service department costs using the step-down allocation method starting with maintenance costs. Table 3 reports the allocation of service department costs using the step-down allocation method but starting with engineering costs. The control- ler's office is considering adopting one of these two methods and is seeking input from the divisions. Engineering Maintenance TABLE 1 RBB Brands Summary of Service Department Utilization (All Numbers, Except Dollars, Are 1.000 Hours) Service Departments Service Departments Engineering 500 800 Service Departments Maintenance hours consumed Percentage of maintenance cost Cost per maintenance hour Allocated cost of maintenance department Engineering operating cost Total cost to be allocated Maintenance 100 900 Engineering hours consumed Cost per engineering hour Engineering costs allocated to profit centers Maintenance and engineering costs allocated to profit centers Service Departments Engineering hours consumed Percentage of cost Engineering operating cost Cost per engineering hour Allocated cost of engineering department Maintenance operating cost Total cost to be allocated Maintenance hours consumed Cost per maintenance hour Percentage of maintenance Maintenance costs allocated to profit Household Products centers Maintenance and engineering costs allocated to profit centers Profit Centers 900 1.600 ? 1 TABLE 2 RBB Brands Allocation of Service Department Costs Using Step-Down Allocation First Department Allocated: Maintenance (Millions of Dollars Except Cost per Hour) Engineering 800 15% Service Departments $8.42 67.50 $75.92 Foods 1.200 2.900 $67.50 Total 2.700 Maintenance Service Departments Engineering Maintenance 100 4.55% Total Cost (Millions) $3.07 55.80 $58.87 $67.50 $55.80 Profit Centers Household Products 1,600 30% $16.85 900 $32.54 $49.38 900 40.91% $27.61 1,600 shift 35.56% ctri Profit Centers $20.93 Foods 2.900 TABLE 3 RBB Brands Allocation of Service Department Costs Using Step-Down Allocation First Department Allocated: Engineering (Millions of Dollars Except Cost per Hour) $48.54 55% $30.53 1.200 $43.38 Household Products Foods 1,200 54.55% $73.92 $36.82 S 10.53 2,900 Required: Analyze and critically evaluate the controller's proposal in a position paper to the president of house- hold products. In addition, provide a series of key points that the president can raise at the next meet- ing with the corporate controller and corporate management.