Maurice Tutor

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Category > Accounting Posted 25 Sep 2017 My Price 7.00

Greenbold Manufacturing

Cost allocation and decision making. Greenbold Manufacturing has four divisions named after its locations: Arizona, Colorado, Delaware, and Florida. Corporate headquarters is in Minnesota. Greenbold corporate headquarters incurs $5,600,000 per period, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The CEO has asked each division manager to suggest an allocation base for the indirect headquarters costs from among revenues, segment margin, direct costs, and number of employees. The following is relevant information about each division:

 

Arizona

Colorado

Delaware

Revenues

$7,800,000

$8,500,000

$6,200,000

Direct costs

5,300,000

4,100,000

4,300,000

Segment margin

$2,500,000

$4,400,000

$1,900,000

Number of employees

2,000

4,000

1,500

1. Allocate the indirect headquarters costs of Green bold Manufacturing to each of the four divisions using revenues, direct costs, segment margin, and number of employees as the allocation bases. Calculate operating margins for each division after allocating headquarters costs.

2. Which allocation base do you think the manager of the Florida division would prefer? Explain.

3. What factors would you consider in deciding which allocation base Green bold should use?

4. Suppose the Green bold CEO decides to use direct costs as the allocation base. Should the Florida division

be closed? Why or why not?

Answers

Maurice Tutor
(5)
Status NEW Posted 25 Sep 2017 03:09 PM My Price 7.00

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