Please Answer the following questions:
1. Based on the headquarters’ current overhead allocation method, what would be the net income of the Taejon branch as of 2007 and 2008?
-Taejon branch’s revenue and direct costs are provided in Exhibit 5
– Taejon branch’s current allocation base for overhead costs is the revenues amount
2. The current overhead cost driver, branch revenue, is criticized because it lacks any logical relationship to the overhead costs allocated by headquarters. Please find a more appropriate cost driver for the 17 overhead costs listed in Exhibit 3. (Please note that not all overhead costs need to be allocated. Based on Kim’s argument, certain headquarters costs did not have to be allocated to branches unless there was a direct proportional relationship between these resources and brank activities.)
3. Using your cost drivers from 2 above, compute the net income of the Taejon branch as of 2007 and 2008. Compare your answer to the amount from 1 and state which method you think is more appropriate.