a.
|
Target fixed corporate costs ($000) |
$18,000 |
|
Target variable cost as a percentage of revenue |
|
|
(2.5% x $600,000) |
15,000 |
|
Target total corporate cost |
$33,000 |
|
Target Latin America division revenues as a percentage of |
|
|
total corporate revenues (= $75 million ÷ $600 million) |
x 12.5% |
|
Target allocation of corporate cost to Latin America division |
$ 4,125 |
b.
|
|
Old Method |
|
|
Actual revenue as percentage |
|
|
|
of total ($000) |
($80 ÷ $800) |
10.0% |
|
Corporate cost |
|
$35,000 |
|
Allocation to Latin America division |
|
|
|
(10% x $35,000) |
|
$ 3,500 |
|
|
Dual Rate |
|
|
Target revenue as a percentage of total |
($75 ÷ $600) |
12.5% |
|
Target fixed corporate cost ($000) |
$18,000 |
|
|
Allocated fixed costs |
12.5% x $18,000 |
$2,250 |
|
Actual division revenue |
$80,000 |
|
|
Allocated variable cost |
2.5% x $80,000 |
2,000 |
|
Total |
|
$4,250 |