Reference no: EM132644661

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                                             $28,600                $36,400
Direct division costs                                 14,300                  21,840
Operating profit before allocation               $14,300                 $14,560

Corporate overhead costs (in thousands of dollars) are expected to be $15,000 in year 8. Of the $15,000, $8,500 is fixed and $6,500 is variable, with respect to revenue. Division managers are evaluated and compensated in part on division operating profit relative to the budget.

Required:

Problem 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?