Question: Cindy's Restaurant has three revenue divisions with direct costs and average monthly figures given in the following information:
|
Dining Room
|
Banquet Room
|
Beverages
|
|
Sales revenue
|
$202,000
|
$108,000
|
$90,000
|
|
Cost of sales
|
81,000
|
41,000
|
28,000
|
|
Wages and salaries cost
|
64,455
|
34,795
|
12,000
|
|
Other direct costs
|
18,640
|
8,960
|
1,600
|
The restaurant also has the following indirect, undistributed costs:
|
Administrative and general expenses
|
$13,000
|
|
Marketing expenses
|
9,000
|
|
Utilities expense
|
6,000
|
|
Property operation and maintenance
|
12,000
|
|
Depreciation expense
|
14,000
|
|
Insurance expense
|
2,000
|
a. Prepare a consolidated contributory income statement showing each of the three divisions side by side for comparison. Do not allocate indirect costs.
b. Allocate the indirect costs to the divisions and prepare a departmental income statement for each division. Administrative, general, and marketing costs are allocated based on sales revenue. The remaining indirect costs are allocated based on square footage used by each division: Dining 2,400 sq. ft. Banquet 3,000, sq. ft. Beverage 600 sq. ft.
c. After allocating the indirect costs, would you consider closing any of the divisions? Why or why not?