Cathy Carpenter, controller of the Sweet and Salty Snacks is preparing a presentation to senior executives about the performance of its four divisions. Summary data related to the four divisions for the most recent year are as follows:

Under the existing accounting system, costs incurred at corporate headquarters are collected in a single cost pool ($1.2 million in the most recent year) and allocated to each division on the basis of its actual revenues. The top managers in each division share in a division-income bonus pool. Division income is defined as operating income less allocated corporate costs.
Carpenter has analyzed the components of corporate costs and proposes that corporate costs be collected in four cost pools. The components of corporate costs for the most recent year and Carpenter's suggested cost pools and allocation bases are as follows:

1. Discuss two reasons why Sweet and Salty Snacks should allocate corporate costs to each division.
2. Calculate the operating income of each division when all corporate costs are allocated based on revenues of each division.
3. Calculate the operating income of each division when all corporate costs are allocated using the four cost pools.
4. How do you think the division managers will receive the new proposal? What are the strengths and weaknesses of Carpenter's proposal relative to the existing single cost-pool method?

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Home Insert Page Layout Formulas Dt Reiew View DIVISIONS CandyNuts Crackers CookiesTotal 3 Revenues 4 Operating Costs $ 870,000 975,000 654,000 501,000 $3,000,000 330,800 3f8,000,000 314,000 1,680,000 200 f,000 $(4,000) S 18,000 $1,319200 5 Operating IncomeS 6 7 Identifiable assets 8 Number of employees $1,800,000 $ 2880000 $1,440,000 $1080,000 $7.200,000 3,600 6,600 2,700 2,10010 Home Insert Page Layout Fornulas Data Review View Suggested Cot Categery Amount 11 Corporate Cost Category Amount Cost Pool Suggested Allocation Base 12 Interest on debt 13 Corporate salaries $380,000 Cost Pool 1ble assets 00,000tPl 60,000 Cost Pool 2 Division revenues Accounting and control 15 General marketing 16 Public affairs 17 Personnel and payroll 18 Total 19 20 150,000 Cost Pool 3Positive operating income* $1200000 Carpenter proposes that thisst be alocated using the operating income (if positive) of divisions,