Goldberg and Rogal Consultants Is a Large, International Consulting Organization

Essay

Goldberg and Rogal Consultants is a large, international consulting organization. The company provides consulting services in the computer and Internet areas. The company also has several divisions that provide manufacturing of various computer parts. The company has five divisions which are all profit centers. Each division includes allocated corporate costs in its annual budget. The budget for the coming year for the Building and Grounds Service department is $6,000,000. Included in this budget is the maintenance of all corporate buildings, depreciation, cleaning, insurance and all other facility-related maintenance costs. The company uses a weighted method of allocating facility costs based on the type of space maintained by each division. Space ranges from manufacturing warehouses, which are least expensive to maintain, to computer mainframe space, which requires specialized temperature controls, air conditioning and maintenance. The company has decided to use a weighting system assigning the following relative weights to each type of space: 1 for warehouse, 3 for office and 5 for computer space. Below find data relating to the five divisions and the square footage of each type of space. Currently, Division 5, the Internet consulting division, is the largest in sales volume and profits for the company, which has been growing at the rate of 20% per year, while divisions 3 and 4 have been struggling due to declining margins on technology products.
Required:
(a) As director of corporate budgeting, you are required to send to each division its facility allocation for the coming year. Prepare a schedule showing how the budget of $6,000,000 will be allocated to each division.
(b) Describe potential motivational problems brought on by these allocations. (Based on an actual company)