Gether Corporation manufactures appliances. It has four divisions: Refrigerator, Stove, Dishwasher, and Microwave Oven. Each division is located in a different city and the headquarters is located in Mississauga, Ontario. Headquarters incurs a total of $14,255,000 in costs, none of which are direct costs of any of the divisions. Revenues, costs, and facility space for each division are as follows:

Gether wants to allocate the indirect costs of headquarters on the basis of either square metres or segment margin for each division.
REQUIRED
1. Allocate the indirect headquarters costs to each division, first using square metres of space and then using segment margin as the allocation base. Calculate the division operating margins after each allocation in dollars and as a percentage of revenue.
2. Which allocation base do you prefer? Why?
3. Should any of the divisions be dropped based on your calculations? Why or why not?

Transcribed Image Text:

Microwave Oven Refrigerator Stove shwasher S10,900,000 S18,800,000 S11,500,000 S6,780,000 5,700,000 10,400,000 6,200,000 220,000 5,200,000 8,400,000 5,300,000 3,560,000 Revenue Direct costs Segment margin Square metres of floor space occupied 130,000 90,000 80,000 100,000