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Burwell Manufacturing is organized into two divisions (Agriculture and Mining) and a corporate headquarters. The financial group of the corporate staff prepared financial operating
Burwell Manufacturing is organized into two divisions (Agriculture and Mining) and a corporate headquarters. The financial group of the corporate staff prepared financial operating plans (budgets) for the two divisions for the upcoming year (year 1). Selected information from the plans is as follows: Employees (full-time equivalent, or FTE) Revenues ($000) Direct division costs ($000) Operating profit before allocation ($000) Agriculture 23 Mining 52 $ 13,650 10,900 $ 2,750 $ 5,850 4,000 $ 1,850 Corporate overhead costs are expected to be $3.7 million in year 1. Of the $3.7 million, $1.45 million is fixed and the remainder is variable. Two-thirds of the variable cost is variable with respect to revenue. The other third is variable with respect to the number of full-time equivalent (FTE) employees. Division managers are evaluated and compensated in part on division operating profit (including any allocated corporate costs) relative to the budget. Corporate overhead at Burwell is allocated based on relative revenues to determine both budgeted and actual operating profit. Required: a. What are the budgeted operating profits in each division for year 1 after the corporate costs are allocated?
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To calculate the budgeted operating profits in each division for year 1 after corporate costs are allocated we need to follow these steps 1 Determine the total corporate overhead costs 2 Allocate the ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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