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: HotelRestaurantCasinoRevenues$16,425,000$5,256,000$12,340,000Direct costs9,819,2603,749,1724,248,768$ 6,605,740$ 8,091,232Segment margin$1,506,828You are also given the following data on the three divisions:HotelRestaurantCasinoFloor space (square feet)Number of employees16,00064,00080,00020050250You 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?

Since, there are multiple requirements we will answer only the first three requirements.Requirement…

Answered: Hotel Restaurant Casino Revenues…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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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
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?

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