Vera Brown, controller of the Scrumptious Snacks, is preparing a presentation to senior executives about the performance of its four divisions. Summary data related to the four divisions for the most recent year are as follows: Click the icon to view the summary data.) (Click the icon to view more information.) The components of corporate costs for the most recent year and Brown's suggested cost pools and allocation bases are as follows: (Click the icon to view the suggested cost pools and allocation bases.) Read the requirements. Requirement 1. Select two reasons why Scrumptious Snacks should allocate corporate costs to each division. A. Income measurement for external parties. B. To quantify the potential for sales growth. C. To determine the likelihood of customer retention. D. To provide information for economic decisions. Requirement 2. Calculate the operating income of each division when all corporate costs are allocated based on revenues of each division. (Round allocation proportions to three decimal places, .XXX. Enter operating losses with minus signs or parentheses.) Division operating income (loss) Candy Nuts Crackers Cookies Data Table 11 A Corporate Cost Category 12 Interest on debt 13 Corporate salaries B Amount Suggested Cost Pool $ 635,000 Cost Pool 1 140,000 Cost Pool 2 120,000 Cost Pool 2 Suggested Allocation Base Identifiable assets Division revenues 14 Accounting and control 15 General marketing 180,000 Cost Pool 2 16 Public affairs 17 Personnel and payroll 135,000 Cost Pool 3 Positive operating income* 90,000 Cost Pool 4 Number of employees 18 Total $1,300,000 Brown proposes that this cost be allocated using operating income (if positive) of divisions, with 19 only divisions with positive operating income included in the allocation base. Data Table A B D E F 1 2 DIVISIONS Candy Nuts Crackers Cookies Total 3 Revenue $ 1,147,000 $ 1,258,000 $ 777,000 $ 518,000 $3,700,000 4 Operating Costs 634,950 606,300 778,500 351,750 2,371,500 5 Operating Income $ 512,050 $ 651,700 $ (1,500) $ 166,250 $ 1,328,500 6 Identifiable assets $ 2,204,000 $ 7 Number of employees 2,900 3,496,000 $ 4,500 1,444,000 $ 2,100 456,000 $7,600,000 500 10,000 More Info Under the existing accounting system, costs incurred at corporate headquarters are collected in a single cost pool ($1.3 million in the most recent year) and allocated to each division on the basis of its actual revenues. The top managers in each division share in a division-income bonus pool. Division income is defined as operating income less allocated corporate costs. Brown has analyzed the components of corporate costs and proposes that corporate costs be collected in four cost pools. Requirements 1. Select two reasons why Scrumptious Snacks should allocate corporate costs to each division. 2. Calculate the operating income of each division when all corporate costs are allocated based on revenues of each division. 3. Calculate the operating income of each division when all corporate costs are allocated using the four cost pools. 4. How do you think the division managers will receive the new proposal? What are the strengths and weaknesses of Brown's proposal relative to the existing single-cost-pool method?