Case Study

You have the following annual information about Moonlight Bar and Grill, which consists of three different operating segments.

The owner wants to allocate indirect costs to each area based on square footage, to analyze how each segment of the restaurant is performing. The dining room is 3,300 square feet, the bar area is 1,500 square feet and the outdoor patio is 1,200 square feet.

Required

a) Allocate the indirect costs as indicated.

b) The owner of the restaurant has an offer from a smoothie shop to rent the bar area for $7,000 per year. Rent does not include any of the indirect costs; they will have to be absorbed by the other segments. make a revised income statement and advise the owner if this if an acceptable offer or not.