Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Accounting Vol 1

Authors: Dr S. Kr. Paul, Prof. Chandrani Paul

1st Edition

164725146X, 9781647251468

More Books

Students also viewed these Accounting questions

Question

4.3 Describe the job analysis process and methods.

Answered: 1 week ago