Raphael Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Raphael's newcontroller, your manager asks you to recommend the basis the hotel should use for allocating fixed overhead costs to the three divisions in 2017. You are presented with the following income statement information for 2016:

You are also given the following data on the three divisions.

You are told that you may choose to allocate indirect costs based on one of the following: direct costs, floor space, or the number of employees. Total fixed overhead costs for 2016 were $14,570,000.

Requirement 2. Allocate indirect costs to the three divisions using each of the three allocation bases suggested. For each allocation base, calculate division operating margins after allocations, in dollars and as a percentage of revenues.

Allocate the indirect costs, then calculate the division operating margin in dollars and as a percentage of revenue for each segment.

Begin with cost allocation based on direct costs. (Round percentages, including intermediate calculations, to two decimal places, X.XX%. Round dollar amounts to the nearest dollar. Use parentheses or a minus sign for negative amounts.)

	Hotel		Restaurant		Casino		Raphael
Allocated fixed overhead costs
Operating margin
Operating margin %

3.	Discuss the results. How would you decide how to allocate indirect costs to the divisions? Why?
4.	Would you recommend closing any of the three divisions (and possibly reallocating resources to other divisions) as a result of your analysis? If so, which division would you close and why?

- Data Table Hotel Restaurant Casino Revenues Direct costs 17,592,000 $ 9,775,000 6,150,000 $ 4,392,100 12,390,000 4,561,700 $ 7,817,000 $ 1,757,900 $ 7,828,300 Segment margin Print Done Data Table Hotel Restaurant Casino 110,000 22,000 88,000 Floor space (square feet) Number of employees 440 110 550 Print Done