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 xed overhead costs to the three divisions in 2017. You are presented with the following income statement information for 2016: HotelRestaurantCasinoRevenues$16,425,000$5,256,000$12,340,000Direct costs9,819,2603,749,1724,248,768Segment margin$ 6,605,740$1,506,828$ 8,091,232You are also given the following data on the three divisions:HotelRestaurantCasinoFloor space (square feet)Number of employees80,00016,00064,00020050250You are told that you may choose to allocate indirect costs based on one of the following: direct costs, floorspace, or the number of employees. Total fixed overhead costs for 2016 were $14,550,000.Required1. 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. Foreach 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 otherdivisions) as a result of your analysis? If so, which division would you close and why?

Calculate the division margins in percentage terms prior to allocating fixed overhead costs as…

Answered: Hotel Restaurant Casino Revenues…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

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 xed overhead costs to the three divisions in 2017. You are presented with the following income statement information for 2016:

Hotel
Restaurant
Casino
Revenues
$16,425,000
$5,256,000
$12,340,000
Direct costs
9,819,260
3,749,172
4,248,768
Segment margin
$ 6,605,740
$1,506,828
$ 8,091,232
You are also given the following data on the three divisions:
Hotel
Restaurant
Casino
Floor space (square feet)
Number of employees
80,000
16,000
64,000
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?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions