E14-24 (similar to) Carbrook Corporation has three divisions: pulp, paper, and fibers. Carbrook's new controller, Kevin Smith, 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.) Question Help Until now, Carbrook Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Smith 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. Requirement 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)? Allocate the fixed corporate-overhead costs, then calculate the division operating margins in dollars and as a percentage of revenue. (Round allocation proportions to one decimal place, X.X%, and dollar amounts to the nearest dollar. Enter operating margin percentages to one decimal, X.X%.) Division margin Allocated fixed corporate-overhead Operating margin Operating margin % Pulp Paper Fibers $ 2,600,000 $ 7,300,000 $ 10,100,000 % % % Pulp Revenues $ 9,400,000 $ Paper 16,900,000 $ Fibers Direct manufacturing costs 4,000,000 8,400,000 24,500,000 10,400,000 2,800,000 1,200,000 4,000,000 Division administrative costs $ 2,600,000 $ 7,300,000 $ 10,100,000 Division margin Number of employees $ 240 $ 120 $ 440 Floor space (square feet) $ 52,200 $ 32,940 $ 94,860 Fixed Corporate-Overhead Costs Human resource management Facility Corporate administration Total Suggested Allocation Bases $ 2,200,000 Number of employees 3,700,000 Floor space (square feet) $ 4,100,000 Division administrative costs 10,000,000 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 Smith. 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 Carbrook Corporation use? Why? How might Smith overcome any objections that may arise from the divisions