Funaro 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.

Costs incurred in the main headquarters? are:

Human resources (HR) costs	$2,300,000
Accounting department costs	1,800,000
Rent and amortization	640,000
Other	660,000
Total costs	$5,400,000

The Funaro 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	Cake	Doughnuts
Total revenues	$21,500,000	$4,700,000	$14,000,000
Direct costs	14,750,000	3,600,000	7,750,000
Segment margin	$6,750,000	$1,100,000	$6,250,000
Number of employees	700	200	100
Square metres of space	8,000	2,000	6,000

Requirements

	1. Allocate the indirect costs of Funaro 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"?