Evelyn Rogers, controller of Wortham Oil Company, is preparing a presentation to senior executives about the performance of its four divisions. Summary data (dollar amounts in millions) related to the four divisions for the most recent year are as follows:

DIVISIONS
	Oil and Gas	Oil and Gas	Chemical	Copper
	Upstream	Downstream	Products	Mining	Total
Revenues	$9,240	$21,840	$7,560	$3,360	$42,000
Operating Costs	3,640	21,040	6,760	3,860	35,300
Operating Income	$5,600	$800	$800	$(500)	$6,700

Identifiable assets	$21,700	$7,350	$3,850	$2,100	$35,000
Number of employees	9,990	15,540	6,660	4,810	37,000

Under the existing accounting system, costs incurred at corporate headquarters are collected in a single cost pool ($4,100 million in the most recent year) and allocated to each division on the basis of its actual revenues. The top managers in each division share in a division-income bonus pool. Division income is defined as operating income less allocated corporate costs.Rogers has analyzed the components of corporate costs and proposes that corporate costs be collected in four cost pools. The components of corporate costs for the most recent year (dollar amounts in millions) and Rogers' suggested cost pools and allocation bases are as follows:

Suggested

Corporate Cost Category Amount Cost Pool

Interest on debt $2,700 CostPool 1

Corporate salaries 200 Cost Pool 2

Accounting and control 120 Cost Pool 2

General marketing 250 Cost Pool 2

Legal 160 Cost Pool 2

Research and development 280 Cost Pool 2

Public affairs 190 Cost Pool 3

Personnel and payroll 200 Cost Pool 4

Total $4,100

* Because public affairs cost includes the cost of public relations staff, lobbyists, and donations to

environmental charities, Rogers proposes that this cost be allocated using operating income (if positive)

of divisions, with only divisions with positive operating income included in the allocation base.

1

alculate the operating income of each division when all corporate costs are allocated based on revenues of each division.
2.	Calculate the operating income of each division when all corporate costs are allocated using the four cost pools.