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Raphael Hotel & Casino situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Raphael's new controller, 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: (Click the icon to view the data.) You are also given the following data on the three divisions. (Click the icon to view the data.) 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 $14,560,000. Read the requirements. .... Requirement 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. (Round your answers to two decimal places, X.XX.) Hotel Casino Restaurant 39.88 % Division margin 42.14 % 63.99 % 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 Raphael Restaurant 3110209.24 Casino 3602231.10 Allocated fixed overhead costs 7847.559.66 Operating margin Operating margin% 4.44% 8.5 % 35.01% Requirements 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. 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. 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 110,000 Restaurant 22,000 Casino 88,000 Floor space (square feet) Number of employees 240 60 300 Data table Revenues Hotel Restaurant 16,850,000 $ 6,427,000 $ 9,750,000 3,864,200 7,100,000 $ 2,562,800 $ Casino 12,430,000 4,475,500 Direct costs 7,954,500 Segment margin Revenue Direct cost segment margin fixed overhead costs Income before taxes Segment margin % Hotel Restaurant Casino Total Direct Cost $16,850,000 $6,427,000 $12,430,000 $35,707,000 $9,750,000 $3,864,200 $4,475,500 $18,089,700 $7,100,000 $2,562,800 $7,954,500 $17,617,300 $14,560,000 $3,057,300 0.421364985 0.39875525 0.639943685 Hotel FOH $14,560,000 $14,560,000 $14,560,000 DC Total DC FOH Allocated $9,750,000 $18,089,700 $7,847,559.66 $3,864,200 $18,089,700 $3,110,209.24 $4,475,500 $18,089,700 $3,602,231.10 Resturant Casino Hotel segment margin Allocated FOH Revenue $7,100,000 $7,847,559.66 $16,850,000 $2,562,800 $3,110,209.24 $6,427,000 $7,954,500 $3,602,231.10 $12,430,000 Operating Margin % -4.44% -8.52% Resturant Casino 35.01% Raphael Hotel & Casino situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Raphael's new controller, 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: (Click the icon to view the data.) You are also given the following data on the three divisions. (Click the icon to view the data.) 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 $14,560,000. Read the requirements. .... Requirement 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. (Round your answers to two decimal places, X.XX.) Hotel Casino Restaurant 39.88 % Division margin 42.14 % 63.99 % 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 Raphael Restaurant 3110209.24 Casino 3602231.10 Allocated fixed overhead costs 7847.559.66 Operating margin Operating margin% 4.44% 8.5 % 35.01% Requirements 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs. 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. 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 110,000 Restaurant 22,000 Casino 88,000 Floor space (square feet) Number of employees 240 60 300 Data table Revenues Hotel Restaurant 16,850,000 $ 6,427,000 $ 9,750,000 3,864,200 7,100,000 $ 2,562,800 $ Casino 12,430,000 4,475,500 Direct costs 7,954,500 Segment margin Revenue Direct cost segment margin fixed overhead costs Income before taxes Segment margin % Hotel Restaurant Casino Total Direct Cost $16,850,000 $6,427,000 $12,430,000 $35,707,000 $9,750,000 $3,864,200 $4,475,500 $18,089,700 $7,100,000 $2,562,800 $7,954,500 $17,617,300 $14,560,000 $3,057,300 0.421364985 0.39875525 0.639943685 Hotel FOH $14,560,000 $14,560,000 $14,560,000 DC Total DC FOH Allocated $9,750,000 $18,089,700 $7,847,559.66 $3,864,200 $18,089,700 $3,110,209.24 $4,475,500 $18,089,700 $3,602,231.10 Resturant Casino Hotel segment margin Allocated FOH Revenue $7,100,000 $7,847,559.66 $16,850,000 $2,562,800 $3,110,209.24 $6,427,000 $7,954,500 $3,602,231.10 $12,430,000 Operating Margin % -4.44% -8.52% Resturant Casino 35.01%