2. You have the following information about the annual revenue and direct costs of a restaurant operation: Dining room Bar (RM) Banquet (RM) room (RM) Revenue 360,400 302,700 271,900 Direct costs 270,300 255,100 259,100 Contributory income 90,100 47,600 12,800 Annual indirect costs for the entire operation total RM104,200. The owner of the restaurant wishes to allocate the indirect costs to the three departments on a square foot basis. The square footage of the three area is: Dining room 2,200 Bar 1,000 Banquet room 800 a) Allocate the indirect costs on this basis and then advise the owner if he should consider the alternative of leasing out the banquet room to a storage company for RM20 per square foot per year. No changes in indirect costs would occur. (10 Marks) b) Before finalizing the decision, you suggest a complete analysis of the indirect costs to be carried out. Analysis reveals the following breakdown of a total indirect costs: RM Administration and general 28,400 Marketing 19,600 Property operation, maintenance and energy costs 17,400 Insurance 7,200 Interest 10,800 Depreciation 20,800 If the banquet space is leased out, the following changes in banquet room indirect cost will occur: Administration and general: There will be a reduction in this cost of an estimated RM1,600 per year. Marketing: There will be a reduction in advertising, saving RM1,200 per year. Property operation, maintenance and energy costs: Some of these costs would be assumed by the storage company. Saving RM100 per month. Insurance: Annual insurance cost will be reduced to RM6,600. Interest: No change could be expected. Depreciation: Saving on depreciation expense will be RM6,600 per year. Further, as a result of no longer operating a banquet room, there will be a reduction in bar revenue of RM27,000 and of bar direct costs of RM20,000 per year. Dining room revenue and direct costs will not be affected. How would you advise the owner? (15 Marks)