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 Rembrandts 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:
Revenue

Hotel
16,425,000

Restaurant
5,256,000

Casino
12,340,000

Direct costs

9,819,260

3,749,172

4,248,768

Segment margin

6,605,740

1,506,828

8,091,232

You are also given the following data on the three segments:
Floor space (square feet)
Number of employees

Hotel
80,000

Restaurant
16,000

Casino
64,000

200

50

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.