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.

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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Manufacturing Costs

Manufacturing cost is the total cost of procuring or producing a product. In other words, the manufacturing cost is the cost that an individual or business owner undertakes for the manufacturing of goods.

Question

Calculate division margins in percentage terms prior to allocating fixed overhead costs.

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.

Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.

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