1 4-20 Cost allocation and decision making. G reenbold Manufactu ring has fou r d ivisions named after its locations: Arizona, Colorado, Delawa re, and Florida . Corporate headqua rters is in M innesota . G reenbold corporate headqua rters incu rs $8,400,000 per period, wh ich is an ind irect cost of the d ivisions. Corporate headqua rters cu rrently a l locates th is cost to the d ivisions based on the revenues of each d ivision . The CEO has asked each d ivision manager to suggest an a l location base for the ind irect headqua rters costs from among revenues, segment ma rg in, d irect costs, and number of employees. The fol lowing is relevant information about each d ivision : Arizona Colorado Delaware Florida Revenues $1 1 ,700,000 $1 2,750,000 $9,300,000 $8,250,000 D irect costs 7,950,000 6,1 50,000 6,450,000 6,900,000 Segment ma rg in $ 3,750,000 $ 6,600,000 $2,850,000 $1 ,350,000 Number of employees 3,000 6,000 2,250 750
1 . Al locate the ind irect headqua rters costs of G reenbold Manufactu ring to each of the fou r d ivisions using revenues, d irect costs, segment ma rg in, and number of employees as the a l location bases. Ca lculate operating ma rg ins for each d ivision after a l locating headqua rters costs.
2. Wh ich a l location base do you th ink the manager of the Florida d ivision wou ld prefer? Expla in .
3. What factors wou ld you consider in dec id ing wh ich a l location base G reenbold shou ld use? 4. Suppose the G reenbold CEO dec ides to use d irect costs as the a l location base. Shou ld the Florida d ivision be c losed? Why or why not?