Stable Enterprises is organized into two geographic divisions (Asia and Europe) and a corporate headquarters. Late in year 7, the Stable Finance Department prepared financial operating plans (budgets) for the two divisions, shown as follows (in thousands of dollars). Asia Europe Revenues $ 33,000 $ 42,000 Direct division costs 16,500 25,200 Operating profit before allocation $ 16,500 $ 16,800 Corporate overhead costs (in thousands of dollars) are expected to be $18,000 in year 8. Of the $18,000, $10,500 is fixed and $7,500 is variable, with respect to revenue. Division managers are evaluated and compensated in part on division operating profit relative to the budget. Required: a. Suppose corporate overhead is allocated to the two divisions based on relative revenue. What are the budgeted operating profits in each division for year 8 after the corporate costs are allocated? b. At the end of year 8, actual corporate costs incurred (in thousands of dollars) were $15,000. Of the $15,000, $8,500 was fixed. Actual results (in thousands of dollars) in the two divisions are as follows. Asia Europe Revenues $ 33,000 $ 42,000 Direct costs 16,500 25,200 Operating profit before allocation $ 16,500 $ 16,800 What are the operating profits in each division for year 8 after the corporate costs are allocated?
Stable Enterprises is organized into two geographic divisions (Asia and Europe) and a corporate headquarters. Late in year 7, the Stable Finance Department prepared financial operating plans (budgets) for the two divisions, shown as follows (in thousands of dollars).
| Asia | Europe | |||||
| Revenues | $ | 33,000 | $ | 42,000 | ||
| Direct division costs | 16,500 | 25,200 | ||||
| Operating profit before allocation | $ | 16,500 | $ | 16,800 | ||
Corporate overhead costs (in thousands of dollars) are expected to be $18,000 in year 8. Of the $18,000, $10,500 is fixed and $7,500 is variable, with respect to revenue. Division managers are evaluated and compensated in part on division operating profit relative to the budget.
Required:
a. Suppose corporate overhead is allocated to the two divisions based on relative revenue. What are the budgeted operating profits in each division for year 8 after the corporate costs are allocated?
b. At the end of year 8, actual corporate costs incurred (in thousands of dollars) were $15,000. Of the $15,000, $8,500 was fixed. Actual results (in thousands of dollars) in the two divisions are as follows.
| Asia | Europe | |||||
| Revenues | $ | 33,000 | $ | 42,000 | ||
| Direct costs | 16,500 | 25,200 | ||||
| Operating profit before allocation | $ | 16,500 | $ | 16,800 | ||
What are the operating profits in each division for year 8 after the corporate costs are allocated?
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