Renoir Hotel & Casino issituated on beautiful Lake Tahoe in Nevada. The complex includes a300-room hotel, a casino, and a restaurant. As Renoir's newcontroller, you are asked to recommend the basis to be used forallocating fixed overhead costs to the three divisions in 2012. Youare presented with the following income statement information for2011:
(Click the icon to view theinformation.)
You are also given the followingdata on the three divisions. (Click the icon to view the data.)
You are told that you may choose toallocate indirect costs based on one of the following: directcosts, floor space, or the number of employees. Total fixedoverhead costs for 2011 was $14,630,000.
Read the requirements.
Requirement 1.Calculate division margins in percentage terms prior to allocatingfixed overhead costs. answers to two decimal places, X.XX.)
Hotel Restaurant Casino
Requirement 2.Allocate indirect costs to the three divisions using each of thethree allocation bases su each allocation base, calculate divisionoperating margins after allocations in dollars and as apercentage
Allocate the indirect costs, thencalculate the division operating margin in dollars and as apercentage of each segment.
Begin with cost allocation based ondirect costs. (Round percentages, including intermediatecalculation:: places, X.XX%. Round dollar amounts to the nearestdollar. Use parentheses or a minus sign for negativ
Allocated fixed overhead costsOperating margin
Hotel Restaurant Casino
Operating margin %
. ,
% % %
Next, allocate costs based on floorspace. (Round percentages, including intermediate calculations, toTu\ places, X.XX%. Round dollar amounts to the nearest dollar. Useparentheses or a minus sign for negativ
Hotel Restaurant Casino
Now allocate costs based on numberof employees. (Round percentages, including intermediate calculatdecimal places, X.XX%. Round dollar amounts to the nearest dollar.Use parentheses or a minus sign fo1 amounts.)
Allocated fixed overhead costs
Hotel Restaurant Casino
Requirement 3.Discuss the results. How would you decide to allocate indirectcosts to the divisions? W
overhead cost. This means that on a short-run basis, the
appropriate but Renoir could attemptto identify the cost drivers for these costs in the lng run. Renoirsh
the three divisions. This will helpguide the choice of an allocatio
short run.
overhead costs arefixed costs in theshort run. It
Renoir shut down one of the divisions.Also, eachdivisi -·dependent of the other two. A decisic
Directcosts 9,825,000 4,392,100 4,475,500 Segmentmargin $ 7,305,000$ 2,034,900$ 7,904,500
Calculate division margins in percentage terms prior toallocating fixed overhead costs.
Allocate indirect costs to the three divisions using each of thethree allocation bases suggested. For each allocation base,calculate division operating margins after allocations in dollarsand as a percentage of revenues.
3. Discuss the results. How wouldyou decide to allocate indirect costs to the divisions? Why?
