You have the following annual information about a restaurant complex consisting of three departments:

a. Allocate the indirect costs as indicated.

b. The owner has an offer from the souvenir store operator who is willing to rent the coffee shop space for $9,600 a year. Advise the owner whether to accept the offer.

c. Before making a final decision, the owner of the restaurant decides to evaluate the changes to indirect costs if the coffee shop space is rented.

If the coffee shop is not operated, it is estimated that lounge sales revenue will decline by $11,700 a year and lounge direct costs will go down by $8,100. Dining room sales revenue and direct costs will not be affected.
Should the owner accept the offer to rent out the coffee shop?LO1

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Contributory Dining Coffee Income Statement Room Shop Lounge Total Sales revenue $194,800 $135,800 $152,800 $483,400 Direct costs Contributory income Indirect costs Operating income ( 154,400) (128,000) (124,600) (407,000) $ 40,400 $ 7,800 $ 28,200 $ 76,400 (52,000) $ 24,400 The owner wants to allocate indirect costs quarterly to each department based on square footage to get a better picture of how each department is doing. Dining room Coffee shop Lounge 2,200 sq. ft. 840 sq. ft. 960 sq. ft.