Question

If Hoagland's allocates its common fixed expenses to the bar and the restaurant, what would be the reported profit of each segment?

Answer 1

To calculate the reported profit of each segment (bar and restaurant) after allocating common fixed expenses, deduct the allocated expenses from each segment's operating profit.

Step-by-step explanation:

Hoagland's allocates its common fixed expenses to the bar and the restaurant based on a reasonable allocation method. To calculate the reported profit of each segment, we need to deduct the allocated common fixed expenses from the segment's operating profit.

For example, if the bar's operating profit before allocation is $5,000 and the allocated common fixed expenses are $2,000, the reported profit of the bar segment would be $3,000 ($5,000 - $2,000).

Similarly, if the restaurant's operating profit before allocation is $10,000 and the allocated common fixed expenses are $3,000, the reported profit of the restaurant segment would be $7,000 ($10,000 - $3,000).