Burwell Manufacturing is organized into two divisions (Agriculture and Mining) and a corporate headquarters. The financial group of the corporate staff prepared financial operating plans (budgets) for the two divisions for the upcoming year (year 1). Selected information from the plans is as follows: Agriculture Mining Employees (full-time equivalent, or FTE) 23 52 Revenues ($000) $ 8,000 $ 17,000 Direct division costs ($000) 5,200 13,300 Operating profit before allocation ($000) $ 2,800 $ 3,700 Corporate overhead costs are expected to be $3.5 million in year 1. Of the $3.5 million, $1.25 million is fixed and the remainder is variable. Two-thirds of the variable cost is variable with respect to revenue. The other third is variable with respect to the number of full-time equivalent (FTE) employees. Division managers are evaluated and compensated in part on division operating profit (including any allocated corporate costs) relative to the budget. Corporate overhead at Burwell is allocated based on relative revenues to determine both budgeted and actual operating profit. Required: What are the budgeted operating profits in each division for year 1 after the corporate costs are allocated? At the end of year 1, actual corporate costs incurred were $3.7 million. Of the $3.7 million, $1.44 million was fixed, $1.3 million was variable with respect to revenues, and $0.96 million was variable with respect to FTEs. Actual division results in year 1, prior to any allocation, are as follows: Agriculture Mining Employees (FTE) 25 55 Revenues ($000) $ 10,400 $ 15,600 Direct costs ($000) 7,400 13,600 Operating profit before allocation ($000) $ 3,000 $ 2,000 What are the actual (reported) operating profits in each division for year 1 after the corporate costs are allocated?
Burwell Manufacturing is organized into two divisions (Agriculture and Mining) and a corporate headquarters. The financial group of the corporate staff prepared financial operating plans (budgets) for the two divisions for the upcoming year (year 1). Selected information from the plans is as follows:
| Agriculture | Mining | |
|---|---|---|
| Employees (full-time equivalent, or FTE) | 23 | 52 |
| Revenues ($000) | $ 8,000 | $ 17,000 |
| Direct division costs ($000) | 5,200 | 13,300 |
| Operating profit before allocation ($000) | $ 2,800 | $ 3,700 |
Corporate overhead costs are expected to be $3.5 million in year 1. Of the $3.5 million, $1.25 million is fixed and the remainder is variable. Two-thirds of the variable cost is variable with respect to revenue. The other third is variable with respect to the number of full-time equivalent (FTE) employees. Division managers are evaluated and compensated in part on division operating profit (including any allocated corporate costs) relative to the budget. Corporate overhead at Burwell is allocated based on relative revenues to determine both budgeted and actual operating profit.
Required:
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What are the budgeted operating profits in each division for year 1 after the corporate costs are allocated?
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At the end of year 1, actual corporate costs incurred were $3.7 million. Of the $3.7 million, $1.44 million was fixed, $1.3 million was variable with respect to revenues, and $0.96 million was variable with respect to FTEs. Actual division results in year 1, prior to any allocation, are as follows:
Agriculture Mining Employees (FTE) 25 55 Revenues ($000) $ 10,400 $ 15,600 Direct costs ($000) 7,400 13,600 Operating profit before allocation ($000) $ 3,000 $ 2,000 What are the actual (reported) operating profits in each division for year 1 after the corporate costs are allocated?
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