Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman

Exercise 8

Slawson is a publicly traded Argentine company with three operating companies located in Argentina, the United States, and Germany. Slawson's corporate headquarters in Buenos Aires oversees the three operating companies. The annual cost of the corporate headquarters, including office expenses, salaries, and legal and accounting fees, is 2.4 million pesos. The following table summarizes operating details of each of the three operating companies.
Required:
a. Allocate the 2.4 million pesos corporate headquarters cost to the three operating companies using number of employees in each operating company.
b. Allocate the 2.4 million pesos corporate headquarters cost to the three operating companies using net income of each operating company as the allocation base.
c. Discuss the advantages and disadvantages of allocating corporate headquarters costs using (i) employees and (ii) net income.