Fortune 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. (Click to view information for each division and the main headquarters.) Requirements 1. Allocate the indirect costs of Fortune to each division equally. Calculate division operating income after allocation of headquarters costs. 2. Allocate headquarters 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 headquarters costs. 3. Which division manager do you think suggested this new allocation? Explain briefly. Which allocation do you think is "better"? Requirement 1. Allocate the indirect costs of Fortune to each division equally. Calculate division operating income after allocation of headquarters costs. (Enter operating losses with minus signs or parentheses.) Bread Cake Doughnuts 5,350,000 Segment margin $ 6,300,000 $ 1,100,000 $ Allocated headquarter costs Operating income (loss) Data table Costs incurred in the main headquarters are: Human resources (HR) costs $ 2,100,000 Accounting department costs 1,600,000 Rent and amortization 800,000 Other 600,000 $ 5,100,000 Total costs The Fortune 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 costs - number of employees for HR costs, total revenues for accounting division costs, square metres of space for rent and amortization costs, and equal allocation among the divisions of "other" costs. Information about the three divisions follows: Bread $ Total revenues Direct costs 21,200,000 $ 14,900,000 Cake Doughnuts 4,500,000 $ 13,100,000 3,400,000 7,750,000 $ 6,300,000 $ 1,100,000 $ 5,350,000 Segment margin Number of employees Square metres of space 600 100 300 9,000 4,000 7,000