Cost allocation to divisions. Lenzig Corporation has three divisions: pulp, paper, and fibers. Lenzigs new controller, Ari Bardem, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2012:

	A	B	C	D
1		Pulp	Paper	Fibers
2	Revenues	$ 8,500,000	$17,500,000	$ 24,000,000
3	Direct manufacturing costs	4,100,000	8,600,000	11,300,000
4	Division administrative costs	2,000,000	1,800,000	3,200,000
5	Division margin	$ 2,400,000	$ 7,100,000	$ 9,500,000
6
7	Number of employees	350	250	400
8	Floor space (square feet)	35,000	24,000	66,000

Until now, Lenzig Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Bardem asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases:

	F	G	H
1	Fixed Corporate Overhead Costs		Suggested Allocation Bases
2	Human resource management	$ 1,800,000	Number of employees
3	Facility	2,700,000	Floor space (square feet)
4	Corporate Administration	4,500,000	Division administrative costs
5	Total	$ 9,000,000

1. Allocate 2012 fixed corporate-overhead costs to the three divisions using division margin as the alloca- tion base. What is each divisions operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)?

2. Allocate 2012 fixed costs using the allocation bases suggested by Bardem. What is each divisions operating margin percentage under the new allocation scheme?

3. Compare and discuss the result sof requirements 1 and 2. If division performance is linked to operating margin percentage, which division would be most receptive to the new allocation scheme? Which divi- sion would be the least receptive? Why?

4. Which allocation scheme should Lenzig Corporation use? Why? How might Bardem overcome any objections that may arise from the divisions?