Cost allocation to divisions. Rembrandt Hotel and Casino is situated in Ontario. The com¬

plex includes a 300-room hotel, a casino, and a restaurant. As Rembrandt’s new controller, you are asked to recommend the basis used for allocating fixed overhead costs to the three divisions in 2007. You are presented with the following income statement for the year 2007:

Hotel Restaurant Casino Revenue $16,625,000 $5,456,000 $12,540,000 Direct costs 10,019,260 3,949,172 4,448,768 Segment margin $ 6,605,740 $1,506,828 $ 8,091,232 also given the following data on the three segments:

Hotel Restaurant Casino Square metres 80,000 16,000 64,000

# of employees 200 50 250 You may choose to allocate costs based on direct costs, floor space (in square metres), or the number of employees. Total fixed overhead for 2007 was $14,550,000.
2.
3.
Required 1. Calculate segment margins in percentage terms before allocating fixed overhead costs.
Allocate indirect costs to the three divisions using each of the three allocation bases sug¬
gested. Calculate segment margins in dollar and percentage terms.
Discuss the results. What is your preferred basis for allocating indirect costs to the divi¬
sions?
ould you recommend shutting any of the three divisions (and possibly reallocating Resources to other divisions) as a result of your analysis? If so, which division would you lose, and why?