Grand Corporation manufactures appliances. It has four divisions: Refrigerator, Stove, Dishwasher, and Microwave Oven. Each division is located in a different city and the headquarters is located in Moncton, New Brunswick. Headquarters incurs a total of $14,300,000 in costs, none of which are direct costs of any of the divisions.

Revenues, costs, and facility space for each division are as follows:

				Microwave
	Refrigerator	Stove	Dishwasher	Oven
Revenue	$11,200,000	$19,400,000	$12,000,000	$6,850,000
Direct costs	6,100,000	10,800,000	6,260,000	3,260,000
Segment margin	$5,100,000	$8,600,000	$5,740,000	$3,590,000
Square metres of floor
space occupied	110,000	140,000	130,000	120,000

Gether wants to allocate the indirect costs of headquarters on the basis of either square metres or segment margin for each division.

Requirements

1.	Allocate the indirect headquarters costs to each division, first using square metres of space and then using segment margin as the allocation base. Calculate the division operating margins after each allocation in dollars and as a percentage of revenue.
2.	Which allocation base do you prefer? Why?
3.	Should any of the divisions be dropped based on your calculations? Why or why not?

Requirement 1. Allocate the indirect headquarters costs to each division, first using square metres of space and then using segment margin as the allocation base. Calculate the division operating margins after each allocation in dollars and as a percentage of revenue.

Let's begin by allocating costs based on square metres. (Enter percentages rounded to one decimal place.)

	Refrigerator		Stove		Dishwasher		Microwave Oven		Total
Square metres	110,000		140,000		130,000		120,000		500,000
% square metres		%		%		%		%	100	%
Allocated headquarter costs