A few days after you prepared the new budgets, you werehaving lunch in the staff room and happened to sit nextto Wendy, an employee from the marketing department.When she learned that you were the new CFO she said,“I don’t understand why the fxed manufacturing costsare allocated to the product lines in proportion to thesales value of the products produced. Doesn’t it makemore sense to allocate fxed manufacturing costs to thethree product lines in proportion to their margin of salesover variable manufacturing cost? That way we wouldhave higher margins on our lipstick and nail polish lines.”