Perth Corporation has two operating divisions, a casino and a hotel. The two div

Question

Perth Corporation has two operating divisions, a casino and a hotel. The two divisions meet the requirements for segment disclosures. Before transactions between the two divisions are considered, revenues and costs are as follows:

Casino Hotel
Revenues $80,000,000 $ 55,000,000
Costs 45,000,000 40,000,000

The casino and the hotel have a joint marketing arrangement by which the hotel gives coupons redeemable at casino slot machines and the casino gives discount coupons good for stays at the hotel. The value of the coupons for the slot machines redeemed during the past year totaled $12,000,000. The discount coupons redeemed at the hotel totaled $5,000,000. As of the end of the year, all coupons for the current year expired.

Required (please show work) :
What are the operating profits for each division (Casino & hotel) considering the effects of the costs arising from the joint marketing agreement?

Explanation / Answer

item casino hotel Revenue outsider revenue $80,000.00 $55,000.00 Transfer price $12,000.00 $5,000.00 Total revenue $92,000.00 $60,000.00 Less Outside costs $45,000.00 $40,000.00 Transfer price $5,000.00 $12,000.00 Total costs $50,000.00 $52,000.00 Operating profit before tax $42,000.00 $8,000.00

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