Hotel Restaurant Casino Revenues $16,425,000 $5,256,000 $12,340,000 Direct costs 9,819,260 3,749,172 4,248,768 $ 6,605,740 $ 8,091,232 Segment margin $1,506,828 You are also given the following data on the three divisions: Hotel Restaurant Casino Floor space (square feet) Number of employees 16,000 64,000 80,000 200 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. Required 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. 2. Allocate indirect costs to the three divisions using each of the three allocation bases suggested. For each allocation base, calculate division operating margins after allocations, in dollars and as a per- centage of revenues. 3. Discuss the results. How would you decide how to allocate indirect costs to the divisions? Why? 4. Would you recommend closing any of the three divisions (and possibly reallocating resources to other divisions) as a result of your analysis? If so, which division would you close and why?

Hotel Restaurant Casino Revenues $16,425,000 $5,256,000 $12,340,000 Direct costs 9,819,260 3,749,172 4,248,768 $ 6,605,740 $ 8,091,232 Segment margin $1,506,828 You are also given the following data on the three divisions: Hotel Restaurant Casino Floor space (square feet) Number of employees 16,000 64,000 80,000 200 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. Required 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. 2. Allocate indirect costs to the three divisions using each of the three allocation bases suggested. For each allocation base, calculate division operating margins after allocations, in dollars and as a per- centage of revenues. 3. Discuss the results. How would you decide how to allocate indirect costs to the divisions? Why? 4. Would you recommend closing any of the three divisions (and possibly reallocating resources to other divisions) as a result of your analysis? If so, which division would you close and why?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 2BE: Support department allocations The centralized computer technology department of Hardy Company has...

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