8/17/2019 Rembrandt Hotel 2015

1/1

Rembrandt

Conception: C. Horngren et al.

Adaptation: E. Zilberberg

Rembrandt Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room

hotel, a casino, and a restaurant. As Rembrandt’s new controller, you are asked to recommend the basis to

be used for allocating fixed overhead costs to the three divisions in 2011. You are presented with the

following information for the year 2010:

Hotel Restaurant Casino

Revenue

Direct costs

Segment margin

16,425,000

9,819,260

6,605,740

5,256,000

3,749,172

1,506,828

12,340,000

4,248,768

8,091,232

You are also given the following data on the three segments:

Hotel Restaurant Casino

Floor space (square feet)

Number of employees

80,000

200

16,000

50

64,000

250

You may choose to allocate indirect costs using 4 different cost allocation bases: sales, segment margins,

square feet x number of employees, and equal allocation.Total fixed overheads for 2010 amounted to $14,550,000.

Required

Calculations

1)  Calculate segment margins (hotel, restaurant, and casino) in value and percentage prior to allocating

fixed overhead costs

2) 

Allocate indirect costs to the three divisions using each of the four allocation bases suggested.

Calculate the income in dollar an in percentage of sales for each allocation base.

Analysis

3)  Discuss the results. What is your preferred base for allocating indirect costs to the divisions? Why?

4)  Would you recommend shutting any of the three divisions? If so, which division would you close,

and why?

Go to the questionnaire by clicking on the link available in the Rembrandt folder and answer the

questions.