Questions 32-33 use the inform
Questions 32-33 use the information that follows.
Argentina Corporation has three divisions: Pulp, Paper, andFibers. Argentina’s new controller, David Fisher, is reviewing theallocation of fixed corporate-overhead costs to the threedivisions. He is presented with the following information for eachdivision for 2017:
|
|
Pulp | Paper | Fiber |
| Revenues | $19,600 | $34,200 | $51,000 |
| Direct manufacturingcosts | 7000 | 15,600 | 22,200 |
| Division administrativecosts | 6600 | 4000 | 9400 |
| Division margin | $6000 | $14,600 | $19,400 |
| Number of employees | 150 | 75 | 275 |
| Floor space (sq.ft.) | 26,600 | 17,670 | 50,730 |
Argentina Corporation has allocated fixed corporate-overheadcosts to the divisions on the basis of division margins. Fisherasks for a list of costs that compromise fixed corporate overheadand suggests the following new allocation bases:
| fixed corporate-overheadcosts | suggested allocationbases | |
| human resourcemanagement | $4,600 | number of employees |
| facility | 6,400 | floor space (sq.ft.) |
| corporateadministration | 9,200 | division administrativecosts |
| total | $20,200 |
32. Allocate 2017 fixed-corporate overhead costs to the threedivisions using division margin as the allocation base. What iseach division’ operating margin percentage (division margin minusallocated fixed corporate-overhead costs as a percentage ofrevenues)?
33. Allocate 2017 fixed costs using the allocation basessuggested by Fisher. What is each division’s operating marginpercentage under the new allocation scheme?
Thanks
Answer:
(1)
|
Pulp |
Paper |
Fibres |
|
|
Percentage Margin |
(6000/40000) =15% |
(14600/40000) =36.5% |
(19400/40000) =48.5% |
|
Employees |
(150/500) =30% |
(75/500) =15% |
(275/500) =55% |
|
Floor Space |
(26600/95000) =28% |
((17670/95000) =18.60% |
(50730/95000) =53.40% |
|
Adm Office |
(6600/20000) =33% |
(4000/20000) =20% |
(9400/20000) =47% |
|
Pulp |
Paper |
Fibres |
Total |
|
|
Division Margin |
6000 |
14600 |
19400 |
40000 |
|
O/H allocated |
(20200 * 15%) =3030 |
(20200 * 36.5%) =7373 |
(20200 * 48.5%) =9797 |
20200 |
|
Operation Margin |
2970 |
7227 |
9603 |
19800 |
|
Revenue |
19600 |
34200 |
51000 |
104800 |
|
Revenue % |
15.15% |
21.13% |
18.83% |
18.89% |
(2)
|
Pulp |
Paper |
Fibres |
Total |
|
|
Division Margin |
6000 |
14600 |
19400 |
40000 |
|
Human resource management |
(4600 * 30%) =1380 |
(4600 * 15%) =690 |
(4600*55%) =2530 |
4600 |
|
Facility Costs |
(6400 * 28%) =1792 |
(6400 * 18.60%) =1190.40 |
(6400*53.40%) =3417.60 |
6400 |
|
Corp Admin |
(9200 * 33%) =3036 |
(9200 * 20%) =1840 |
(9200 * 47%) =4324 |
9200 |
|
Corp O/H Allocated |
6208 |
3720.40 |
10271.60 |
20200 |
|
Operating Margin |
(208) |
10879.60 |
9128.4 |
19800 |
|
Revenue |
19600 |
34200 |
51000 |
104800 |
|
Revenue % |
-1.06% |
31.81% |
17.90% |
18.89% |
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