Stark and Company is a manufacturer that sells robots predominantly in the Asian market. Times have been touch for the auto industry and Stark and Company is no different. The company is under tremendous pressure to turn a profit. Several years as analysts were predicting a large downturn in the robot industry. Stark decided to purchase a smaller niche robot make in the hopes of capturing a different segment of the consumer market and to better learn the manufacturing processes of other robot maken Starks still operates as two separate divisions. Class and New Ace with each division manager employing a different manufacturing philosophy. The Classic manager is concerned with low input costs and quantity in production in addition to brand recognition and robot power. The New Age manager is concerned with quality and innovation in manufacturing in addition to fuel efficient and environmentally friendly robots SAC continued to suffer losses even with the addition of the New Ace division. While Classic appears to have good margins its sales levels are winding despite a large marketing campaign New Age has had good sales levels but there is concern that is quality and innovation focus is not cost effective Upper management wants to adopt one manufacturing philosophy for the entire company and has hired you as an outside constant to provide undance on their performance evaluation of the two ma rs Discussions with the controller revealed the following SAC feels it has a good handle on direct costs. Since the two divisions use differentingut materials these costs are tracked by division rather than allocated to the two divisions Direct labour is allocated on the basis of manufacturing labour hours (MUHX New Age generally uses 60% of total MH but its focus on quality makes it relatively more laboures capital intensive than Class. Thus, New Age enerally uses only 10% of total machine hours Indirect manufacturing costs are broken down into a number of categories based on the allocation method used to in these costs to the two divisions cost of goods sold. Categories dude carrying costs, variatie overhead, fixed overhead general and fixed overhead support. Carrying costs, ke direct costs are tracked by division and include storage space rental insurance polar and obsolescence. The first two items are recorded through third party biling whereas the Latter two items are determined by each division manager Variable overhead includes indirect labour such as rework about supervisor and plant manager wares as well as indirect materials such as scrap and warranty expense estimates. The cost Category is allocated to the two divisions on the basis of MLH sted Fixed overhead general indudes plant amortization equipment amortization, plant powerfutilities, property taxes, and payments for guard and Janitor services. SACS allocation method was u by the classic manager, allocate costs on an equal (50-50) basis since the two divisions take up relatively the same amount of plant space Pored overhead support mainly includes the costs from two production support departments, quality control and repairs antrance equipment and products. These two departments provide services to both the Classic and New Age division SAC uses a cost allocation method suggested by the New Age manager, alocate costs on the basis of defective products per 1000 units produced per division SAC treats non production related costs as period costs as such, they are not allocated to the two divisions. Costs include research and development costs and marketing costs which include market personnel salaries and advertising expenses Bonuses to divisional managers are on the basis of Return on investment (RO Returns are derived from gros marins, which are calculated using the action rules above Upper management believes gross margins are also an appropriate measure to evaluate the two divisions Required