Raphael Hotelâ & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes aâ 300-room hotel, aâ casino, and a restaurant. As Raphael's newâ 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
$16,850,000
$7,150,000
$12,430,000
Direct Costs
$9,675,000
$4,392,000
$4,624,900
Segment Margin
$7,175,000
$2,757,900
$7,805,100
You are given the following data on the three divisions.
Hotel
Restaurant
Casino
Floor Space (Square Feet)
75,000
15,000
60,000
Number of Employees
360
90
450
Requirement 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. â (Round your answers to two decimalâ places, X.XX.)
Hotel
Restaurant
Casino
Division margin
%
%
%
Requirement 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 percentage of revenues.
Allocate the indirect costs, then calculate the division operating margin in dollars and as a percentage of revenue for each segment.
Begin with cost allocation based on direct costs
Hotel
Restaurant
Casino
Raphael (Total)
Allocated Fixed Overhead Costs
?
?
?
?
Operating Margin
?
?
?
?
Operating Margin %
?%
?%
?%
Next, allocate costs based on floor space
And finally costs based on number of employers based on the Table above
Hotel
Restaurant
Casino
Raphael (Total)
Allocated Fixed Overhead Costs
?
?
?
?
Operating Margin
?
?
?
?
Operating Margin %
?%
?%
?%
Now allocate costs based on number of employees
Hotel
Restaurant
Casino
Raphael (Total)
Allocated Fixed Overhead Costs
?
?
?
?
Operating Margin
?
?
?
?
Operating Margin %
?%
?%
?%
There is (a dramatic difference/no difference) in the operating margin percentages depending upon which allocation base is chosen. Where cost allocation is required, the (cause-and-effect/direct cost/non-financial) and (benefits received/division-costs/floor-space) criteria are recommended. The $14,600,000 is (fixed/variable) overhead cost. This means that on a short-run basis the (cause-and-effect/direct cost/non-financial) criterion is not appropriate but Smith could attempt to identify the cost drivers for these costs in the long run. Smith should look at how the $14,610,000 cost (benefits/is a detriment to) the three divisions.
Raphael Hotelâ & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes aâ 300-room hotel, aâ casino, and a restaurant. As Raphael's newâ 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 | $16,850,000 | $7,150,000 | $12,430,000 |
| Direct Costs | $9,675,000 | $4,392,000 | $4,624,900 |
| Segment Margin | $7,175,000 | $2,757,900 | $7,805,100 |
You are given the following data on the three divisions.
| Hotel | Restaurant | Casino | |
| Floor Space (Square Feet) | 75,000 | 15,000 | 60,000 |
| Number of Employees | 360 | 90 | 450 |
Requirement 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. â (Round your answers to two decimalâ places, X.XX.)
| Hotel | Restaurant | Casino | ||||
| Division margin | % | % | % | |||
Requirement 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 percentage of revenues.
Allocate the indirect costs, then calculate the division operating margin in dollars and as a percentage of revenue for each segment.
Begin with cost allocation based on direct costs
| Hotel | Restaurant | Casino | Raphael (Total) | |
| Allocated Fixed Overhead Costs | ? | ? | ? | ? |
| Operating Margin | ? | ? | ? | ? |
| Operating Margin % | ?% | ?% | ?% |
Next, allocate costs based on floor space
And finally costs based on number of employers based on the Table above
| Hotel | Restaurant | Casino | Raphael (Total) | |
| Allocated Fixed Overhead Costs | ? | ? | ? | ? |
| Operating Margin | ? | ? | ? | ? |
| Operating Margin % | ?% | ?% | ?% |
Now allocate costs based on number of employees
| Hotel | Restaurant | Casino | Raphael (Total) | |
| Allocated Fixed Overhead Costs | ? | ? | ? | ? |
| Operating Margin | ? | ? | ? | ? |
| Operating Margin % | ?% | ?% | ?% |
There is (a dramatic difference/no difference) in the operating margin percentages depending upon which allocation base is chosen. Where cost allocation is required, the (cause-and-effect/direct cost/non-financial) and (benefits received/division-costs/floor-space) criteria are recommended. The $14,600,000 is (fixed/variable) overhead cost. This means that on a short-run basis the (cause-and-effect/direct cost/non-financial) criterion is not appropriate but Smith could attempt to identify the cost drivers for these costs in the long run. Smith should look at how the $14,610,000 cost (benefits/is a detriment to) the three divisions.
Related questions
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
|
There is
in the operating margin percentagesdepending upon which allocation b
Where cost allocation is required,the
and
criteria are recommenc
$14,630,000 is a
|
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 $14,630,000 cost
the three divisions. This will helpguide the choice of an allocatio
short run.
Requirement 4.Would you recommend closing any of the three divisions (andpossibly reallocating resc divisions) as a result of your analysis?If so, which division would you close and why?
The analysis in requirement 2
|
guide the decision on whether to shut down any of thedivisior
overhead costs arefixed costs in theshort run. It
variable
how these costs would be affectedit
Renoir shut down one of the divisions.Also, eachdivisi -·dependent of the other two. A decisic
is not
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the restaurant, for example,
the attendance at the casino andthe
Data Table
(cont.) Hotel Restaurant Casino
Revenues $ 17,130,000$ 6,427,000 $ 12,380,000
Directcosts 9,825,000 4,392,100 4,475,500 Segmentmargin $ 7,305,000$ 2,034,900$ 7,904,500
Data Table
Hotel Restaurant Casino
Floor space (squarefeet) 70,000 14,000 56,000
Number ofemployees 280 70 350
Requirements
Requirements
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?
4. Would yourecommend closing any of the three divisions (and possiblyreallocating resources to other divisions) as a result of youranalysis? If so, which division would you close and why?
