Executive salaries are charged to three operating divisions on the basis of capital investment in the three divisions. If the investment is $21.5 million in the Northern Division, $31.5 million in the Eastern Division, and $27.5 million in the Western Division, how should executive salaries of $466,900 be allocated to the three divisions?

Answer 1

To allocate the executive salaries to the three divisions, we need to determine the proportion of the total capital investment that each division represents.

First, we calculate the total capital investment:
Total Capital Investment = $21.5 million + $31.5 million + $27.5 million = $80.5 million

Next, we calculate the proportion of the total capital investment for each division:
Northern Division: $21.5 million / $80.5 million = 0.267
Eastern Division: $31.5 million / $80.5 million = 0.391
Western Division: $27.5 million / $80.5 million = 0.342

Now, we multiply each division's proportion by the total executive salaries to allocate the amount to each division:
Northern Division: 0.267 * $466,900 = $124,831.33 (rounded to $124,831)
Eastern Division: 0.391 * $466,900 = $182,330.90 (rounded to $182,331)
Western Division: 0.342 * $466,900 = $159,737.80 (rounded to $159,738)

Therefore, the executive salaries should be allocated as follows:
Northern Division: $124,831
Eastern Division: $182,331
Western Division: $159,738