Hospitality industry managerial accounting 7th edition ch5 problem 20. What alternative is the best advice?

1.Continue the lounge operation as usual

2.Close the lounge and expand resturant

3. Lease the lounge

moe Jl Prepare a fully allocated Note: The Appendix to this chapter discusses and tilustrates the step method. eth Problem 20 Upset Ulysses is at it once again after he received the fully allocated month statement for his lodging operation, USG Inn. He does a little research acome advice. He sees three alternatives for the lounge operations as follows: 1. Continue the lounge operations as is. 2. Close the lounge and expand the restaurant. 3. Lease the lounge space to Lounge Lease Inc. (LLI), which would run the lounge opera tion. The following table summarizes USG Inn's monthly fully allocated income statement Rooms Food $100,000 50,000 50,000 40,000 Total 00,000 23000 80,000 20,000 30,000 Sales Department profit Allocated overhead Pretax income Income taxes Net income 100,000 200,000 100,000 $100,000 270,000 170,000 100,000 25,000 75,000 $ 10,000 (10,000) Additional information: 1. Closing the lounge would reduce overhead costs by $10,000 per month the lounge to LLI would reduce the overhead costs by $5,000 per month. 2. The lounge space can be leased to LLI for 6 percent of sales. Ulysses believes this firm will be able to generate $1,000,000 of annual sales. 3. If the lounge is closed, room sales are expected to decrease by ent t however restaurant profits are expected to increase by 10 percent. Assume the expenses of rooms, food, and lounge are all variable except for $50, department expenses, which are fixed DIR