0 Fixed overhead-support mainly includes the costs from two production support departments, qualityr control and repairs 8: maintenance (equipment and products). These two departments provide services to both the Classic and New Wave division. NMC uses a cost allocation method suggested by the New Wave manager; allocate costs on the basis of defective products per 1,000 units produced, per division. ' NMC treats non-production related costs as period costs; as such, they are not allocated to the two divisions. Costs include research and development costs and markeng costs (which include marketing personnel salaries and advertising expenses). ' Bonuses to divisional managers are on the basis of Return on Investment (ROI). Returns are derived from gross margins, which are calculated using the allocation rules above. Upper management believes gross margins are also an appropriate measure to evaluate the two divisions. Required Prepare a memo to NMC upper management that outlines weaknesses in their current cost allocation process and ways to improve it that will assist them in evaluating the performance of the Classic and New 1Wave divisions. Be sure to discuss manager incentives for manipulating allocation methods to inuence performance measures