Cost allocation to divisions. Rembrandt Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Rembrandt's new controller, your manager asks you to recommend the basis the hotel should use for allocating fixed overhead costs to the three divisions in 2017. You are presented with the following income statement information for 2016: Hotel Restaurant Casino $16,425,000 9,819,260 $ 6,605,740 $12,340,000 4,248,768 $ 8,091,232 Revenues $5,256,000 Direct costs 3,749,172 Segment margin $1,506,828 You are also given the following data on the three divisions: Hotel Restaurant Casino 64,000 Floor space (square feet) Number of employees 80,000 16,000 200 50 250 You are told that you may choose to allocate indirect costs based on one of the following: direct costs, floor space, or the number of employees. Total fixed overhead costs for 2016 were $14,550,000.

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.