Monet Hotel & Casino is situated on beautiful lake Tahoe in Nevada. The complex includes 2 300-room hotel, a casion and a restaurant. As Monet's new controller, you are asked to recommend the basis to be used for allocating fixed overhead costs to the three division in 2012. you are presented with the following income statement information for 2011
Hotel Revenues $16,850,000; Direct cost $9,800,000; Segment margin $7,050,000
Restaurant Revenues $7,150,000; Direct cost $4,215,300; Segment margin $4,238,400
Casino Revenues $7,050,000; Direct cost $2,934,700; Segment margin $8,121,600
Hotel, Restaurant, Casino; Floor space 90,000; 18,000; 72,000; Number of employees 440; 110; 550.
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 2011 was $ 14,610,000
Requirements
1. calculate division margins in percentage terms prior to allocating fixed overhead cost.
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.
3. how would you decide to allocate indirect costs to the division? why?
4. would you recommend closing any of the three divisions as a result of your analysis? if so, which division would you close and why?