# 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

(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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