Holbrook Corporation has three divisions: pulp, paper, and fibers. Holbrook's new controller, Paul Mayer, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2020:

Pulp Paper Fibers

Revenues $8,800,000 $16,600,000 $26,800,000

Direct manufacturing costs 3,500,000 8,200,000 10,500,000

Division administrative costs 3,000,000 1,200,000 5,800,000

Division margin $2,300,000 $7,200,000 $10,500,000

Number of employees 160 120 520

Floor space (square feet) 28,800 22,440 68,760

Until now, Holbrook Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Mayer asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases:

Fixed Corporate-Overhead CostsSuggested Allocation BasesHuman resource management$2,100,000Number of employeesFacility3,600,000Floor space (square feet)Corporate administration4,600,000Division administrative costsTotal$10,300,0001.Allocate 2020 fixed corporate-overhead costs to the three divisions using division margin as the allocation base. What is each division's operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)?2.

Allocate 2020 fixed costs using the allocation bases suggested by Mayer.

What is each division's operating margin percentage under the new allocation scheme?

3.Compare and discuss the results of requirements 1 and 2. If division performance incentives are based on operating margin percentage, which division would be most receptive to the new allocation scheme? Which division would be the least receptive? Why?4.Which allocation scheme should Holbrook Corporation use? Why? How might Mayer overcome any objections that may arise from the divisions