Costs incurred in the main headquarters are as follows:

Human resources (HR) costs	$2,000,000
Accounting department costs	1,500,000
Rent and depreciation	1,300,000
Other	450,000
Total costs	$5,250,000

The

FordFord

upper management currently allocates this cost to the divisions equally. One of the division managers has done some research on activity-based costing and proposes the use of different allocation bases for the different indirect

costsminusnumber

of employees for HR costs, total revenues for accounting department costs, square feet of space for rent and depreciation costs, and equal allocation among the divisions of "other" costs. Information about the three divisions follows:

	Bread	Cake	Doughnuts
Total revenues	$21,400,000	$4,000,000	$13,500,000
Direct costs	14,000,000	3,000,000	7,350,000
Segment margin	$7,400,000	$1,000,000	$6,150,000
Number of employees	500	150	350
Square feet of space	15,000	5,000	5,000

FordFord

Bakery makes baked goods for grocery stores, and has three divisions: bread, cake, and doughnuts. Each division is run and evaluated separately, but the main headquarters incurs costs that are indirect costs for the divisions.

Requirement 1. Allocate the indirect costs of

FordFord

to each division equally. Calculate division operating income after allocation of headquarter costs. (Enter operating losses with minus signs or parentheses.)

	Bread	Cake	Doughnuts
Segment margin	$7,400,000	$1,000,000	$6,150,000
Allocated headquarter costs
Operating income (loss) 2. Allocate headquarter costs to the individual divisions using the proposed allocation bases. Calculate the division operating income after allocation. Comment on the allocation bases used to allocate headquarter costs. 3. Which division manager do you think suggested this new allocation. Explain briefly. Which allocation do you think is better?