P $8-19$: CCC Brands

You are working on a special assignment as a financial analyst for the president of household products of CCC Brands. CCC Brands is a large $$4$ billion diversified consumer products firm. CCC has two divisions,

household products and foods, each headed by a president. Each division is evaluated as a profit center. The senior managers of each division receive bonuses paid out of a pool equal to $1$ percent of the division's

accounting profits. Both divisions receive services from two corporate service departments: engineering and maintenance.

The president of household products attended a meeting at which the corporate controller made a presentation proposing that the two divisions' accounting profits be charged for engineering and maintenance services.

Table $1$ summarizes each division's use of the two service departments, as well as each service department's use of the other service department $($as well as its own use$).$

$\frac{?}{\text{b}\text{a}\text{r}}($ Table $1)$ CCC Brands

Summary of Service Department Utilization $($All Numbers, Except Dollars, Are $1,000$ Hours$)$

The controller then distributed Tables $2$ and $3.$ He explained that each division would be charged for the hours of maintenance and engineering it actually used. The charge per hour would be based on the allocated cost

of the service department. Table $2$ reports the allocation of service department costs using the step$-$down allocation method starting with maintenance costs. Table $3$ reports the allocation of service department costs using

the step$-$down allocation method but starting with engineering costs. The controller's office is considering adopting one of these two methods and is seeking input from the divisions.