Lenzig Corporation has three divisions: Pulp, Paper, and Fibers. Lenzig's new controller, Ari Bardem, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2006:

Until now, Lenzig Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Bardem asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases:

If you want to use Excel to solve this exercise, go to the Excel Lab atwww.prenhall.com/horngren/cost12e and download the template for Exercise 14-19.
1. Allocate 2006 fixed corporate-overhead costs to the three divisions using division margin as the allocation base. What is each division's operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)?
2. Allocate 2006 fixed costs using the allocation bases suggested by Bardem. What is each division's operating margin percentage under the new allocation scheme?
3. Compare and discuss the results of requirements 1 and 2. If division performance is linked to operating margin percentage, which division would be most receptive to the new allocation scheme? Which division would be the least receptive? Why?
4. Which allocation scheme should Lenzig Corporation use? Why? How might Bardem overcome any objections that may arise from the divisions?

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Pulp Paper Fibers $8,500,000 $17,500,000 $24000,000 3 Direct manufacturing costs 4,100,000 8,600,000 11,300,000 Division administrative costs 2,000,000 1,800,0003,200,000 2.400,000 7100000 $9,500,000 2 Revenues 5 Division margin 7 Number of employees 8 Floor space (square feet) 350 400 5,000 24,000 66,000 250 Fixed Corporate Overhead Costs Suggested Allocation Bases 2 Human resource management $1,800,000 Number of employees 3 Facility 4 Corporate Administration 4500,000 Division administrative costs 2,700,000 Floor space (square feet) Total 9,.000,000