: i = ji E vi viii X your recommendation. P 7-7: Wasley Wasley has three operating divisions. Each manager of a division is evaluated on that division's total operating income. Managers are paid 10 percent of operati as a bonus. The AB division makes products A and B. The C division makes product C. The D division makes product D. All four products use only direct labor materials. However, a fixed (unavoidable) $1,784 corporate overhead is applied to each division (or product) based on direct labor dollars. In the following income statement for the first quarter of the year, all numbers are in 000s. Net sales Direct labor Direct materials Corporate overhead Product A $1,250 450 250 Income Statement copied: Product B $850 600 0 Product C $1,250 540 125 Product D $1,650 640 160 Required: a. Allocate the corporate overhead and compute divisional operating income (after allocating corporate overhead) for each of the three division b. One day, the manager of the AB division, Shirley Chen, announces that starting in the second quarter she will be discontinuing product Br it with nothing and letting the labor go, cutting all direct costs attributable to the product). She reasons that product B is losing money for her division and the company. Recompute first-quarter operating income for both division AB and the corporation without division AB's product B (as though the manager had already dropped product B). c. Is Shirley Chen, the manager of the AB division, better off this way? Why or why not? d. Is the corporation better off this way? Why or why not? e. What problems do you see with the reporting/evaluation/incentive system currently in place? SOURCE: Charles Kile.

P7-7: Wasley Wasley has three operating divisions. Each manager of a division is evaluated on that division's total operating income. Managers are paid 10 percent of oper as a boous. The AB division makes products A and B. The C division makes product C. The D division makes product D. All four products use only direct labe materials. However, a fixed (unavoldable) \$1,784 corporato overhead is applied to each division (or produet) based on direet labor dollars. In the followit income statement for the first quarter of the year, all numbers are in 000 s. Requirod: a. Allocate the corporate overhead and compute divisional operating income (after allocating corporate overhead) for each of the three divis: b. One day, the manager of the AB division, Shirley Chen, announces that starting in the second quarter she will be discontinuing product B it with nothing and lotting the labor go, cutting all direct costs attributable to the product). She reasons that product B is losing money for her division and the company. Recompute first-quarter operating income for bcit division AB and the corporation witheut division AB's product B (as though the manager had already dropped product B). c. Is Shirloy Chon, the manager of the AB division, better off this way? Why or why not? d. Is the corporation better oft this way? Why or why not? d. What problems do you see with the reporting/evaluation/incentive system curfently in place? Soupce: Chartes Kile D. Hecciminend one of the five methods for no alocanion of corporale overhead) to allocate corporate of your fecommondation. P 7-7: Wasley ara bones. Aoquired: a. Alocate the corporate overhead and compule divisional opereting income (afler allocating corporate overthead) for each of the three divisions. b. One day, the manager of the AB division, Shirley Chen, announces that starting in the secand cuarter ahe will be discontinuing product B (replacing. her division and the company. Recompute first-quarter coporating income for both division AB and the corporation without division AB' product B (as though the managor had already dropoed product B). c is Shirley Chen, the manager of the AB division, better off this way? Why or why not? d. is the corporation better oft this way? Why or why not? a. What problems do you see with the reportingievaluationincentwo system currently in place? Souncer Charks Kas P 7-7: Wasley Waley has three operating divisions. Each munager of a division is evaluated on that division's total operating income, Managers are paid 10 percent of operatief income as a bonus. The AB division makes prodocts A and B. The C division makes product C. The D division makes product D. All foer products use only direct labor abd direct. materials. However, a fixed (unavoidable) $1,784 corporite overhead is applied to each division (or product) based on direct labor dollan. In the following operatieg income staicment for the fint quarter of the year, all sumbers are in 000 . Required: a. Allocate the corporate overthead and compute divisional operating income (after allocating corporate overhead) for each of the three divisions b. One day, the manager of the AB division, Shirley Chen, announces that starting in the secend quarter she wil be discontinuing product B (replacing. it with nothing and letting the labor 9 , cutting all divect costs aftributable to the product). She reasops that product B is losing money for (replacing: hor division and the company. Recompute first-quarter operating income for both division AB and the corporation without division AB's. product B (as though the manager had already dropped product B). c. Is Shirley Chen, the manager of the AB division, better off this way? Why or why not? d. Is the corporation better off this way? Why or why not? e. What problems do you see with the reportinglevaluationincentive system currently in place? Spupap: Charlas Kin