Emirates Manufacturing has four divisions named after its locations: Al Ain, Abu Dhabi, Dubai, and RAK....

 

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Emirates Manufacturing has four divisions named after its locations: Al Ain, Abu Dhabi, Dubai, and RAK. The Corporate headquarters is in Abu Dhabi. Emirates Manufacturing corporate headquarters incurs $8,000,000 per period and 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 headquarters costs. The following is relevant information about each division: Revenues Direct costs. Segment margin Number of employees 750 Abu Dhabi Dubai $11,700,000 $12,750,000 $9,300,000 7,950,000 6,150,000 6,450,000 3,750,000 6,600,000 2,850,000 Al Ain 3000 6000 RAK $8,250,000 6,900,000 1,350,000 2250 Required: 1. Allocate the costs of Emirates Manufacturing to the four divisions using the following criteria: a. Benefits received b. Ability to bear c. Number of employees 2. Explain which of the above methods (in 1 above) that the manager of Dubai division would prefer. 3. Suppose Emirates Corp decides to use direct costs as the allocation base. Discuss whether poor performing divisions should be closed as a result of using this method. Emirates Manufacturing has four divisions named after its locations: Al Ain, Abu Dhabi, Dubai, and RAK. The Corporate headquarters is in Abu Dhabi. Emirates Manufacturing corporate headquarters incurs $8,000,000 per period and 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 headquarters costs. The following is relevant information about each division: Revenues Direct costs. Segment margin Number of employees 750 Abu Dhabi Dubai $11,700,000 $12,750,000 $9,300,000 7,950,000 6,150,000 6,450,000 3,750,000 6,600,000 2,850,000 Al Ain 3000 6000 RAK $8,250,000 6,900,000 1,350,000 2250 Required: 1. Allocate the costs of Emirates Manufacturing to the four divisions using the following criteria: a. Benefits received b. Ability to bear c. Number of employees 2. Explain which of the above methods (in 1 above) that the manager of Dubai division would prefer. 3. Suppose Emirates Corp decides to use direct costs as the allocation base. Discuss whether poor performing divisions should be closed as a result of using this method.

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