Consider the proposed dual rate method for Global Electronics. Suppose that next year’s targets are as follows:
|
Revenue ($000) |
|
|
Latin America division |
$ 75,000 |
|
Total Global Electronics revenue |
$600,000 |
|
Fixed corporate costs ($000) |
$ 18,000 |
|
Variable cost as a percentage of revenue |
2.5% |
a. Fixed corporate costs are allocated on the basis of relative revenue. What is the target corporate cost for the Latin America division?
b. Suppose that actual Latin America division revenues next year are $80 million, actual corporate revenues are $800 million, and actual corporate costs are $35,000 million. Compare the corporate costs that would have been allocated under the old method at Global Electronics and under the dual rate method.