You have the following monthly information about a large restaurant complex comprising three departments:

The owner wants to allocate indirect costs to each department based on square footage to get a better picture of how each department is doing.

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 $8,000 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 revenue will decline by $13,600 a year and lounge direct costs will go down by $10,200. Dining room revenue and direct costs will not be affected.
Should the owner accept the offer to rent out the coffee shop?

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Dining Room Coffee Shop Lounge Total $184,800 $135,600 $152,900 $473,300 Sales revenue Direct costs (154,600) (129,000) (127,600) (411,200) Department income $ 30,200 $ 6,600 $ 25,300 Indirect costs Operating income $ 62,100 ( 52,000) $ 10,100