Question

Serial Case

1. C4-51 Calculate and interpret activity cost pool rates (Learning Objective 2)

   This case is a continuation of the Caesars Entertainment Corporation serial case that began in Chapter 1. Refer to the introductory story in Chapter 1 (see here) for additional background. (The components of the Caesars serial case can be completed in any order.)

   Caesars Entertainment Corporation (CEC) has several properties in Las Vegas, Nevada, which it owns or manages. The following list of selected property-related data is taken from CEC’s 2014 Form 10-K, Item 2.

   Caesars Entertainment Corporation Selected property data adapted from Form 10K, Item 2 As of December 31, 2014
   Property	Casino space- square feet	Slot machines	Table games	Hotel rooms & suites
   Flamingo Las Vegas	72,300	1,110	120	3,460
   Harrah’s Las Vegas	90,600	1,280	90	2,720
   Paris Las Vegas	95,300	1,020	100	2,920
   Rio All-Suites Hotel & Casino	117,300	1,070	90	2,520
   Bally’s Las Vegas	66,200	1,000	70	2,810
   The Cromwell	28,100	450	60	188
   Planet Hollywood	64,500	1,100	90	2,500
   The LINQ Hotel & Casino	62,200	750	70	2,250
   Caesars Palace Las Vegas	123,700	1,300	170	3,960
   Totals	720,200	9,080	860	23,328

   Calculate a cost activity pool rate for each of the following pools. Use an activity measure for the denominator from the above table. Justify your choice of the cost driver for each of the cost pools. Please note that there may not be just one correct answer for one or more of these cost pools.

   Item	Cost pool	Total
   a.	Slot machine maintenance costs	$ 1,952,200
   b.	Casino utilities expenses	$ 43,212,000
   c.	Property taxes	$ 6,200,000
   d.	Housekeeper wages and benefits	$ 12,947,040
   e.	Casino dealer wages and benefits	$ 15,050,000

Answer 1

		(i)		(ii)	(iii) = i/ii
Item	Cost pool	Total (in $)	Cost driver	Total value of each cost driver	Activiy pool rate (in $)= total amount/value of each cost driver
a	Slot machine maintenance costs	1,952,200	Slot machines	9,080	215.00 per slot machine
b	Casino utilities expenses	43,212,000	Casino space - square feet	720,200	60.00 per square feet
c	Property taxes	6,200,000	Casino space - square feet	720,200	8.61 per square feet
d	Housekeeper wages and benefits	12,947,040	Hotel rooms & suites	23,328	555.00 per room
e	Casino dealer wages and benefits	15,050,000	Table games	860	17,500.00 per table game

Explanation:

Slot machine maintenance costs – The cost driver will be number of slot machines. This is because the maintenance costs of slot machines should be divided among different properties on the basis of number of slot machines in each property.

Casino utilities expenses – The cost driver will be casino space as higher is the space of a property higher will be its utilities expenses. There will be a linear relationship here.

Property taxes –The cost driver will be casino space. This is because property taxes are paid on the basis of area in square feet and hence total tax should be divided among different properties on the basis of area of each property.

Housekeeper wages and benefits – The cost driver will be number of hotel rooms and suits. The higher the number of rooms in a property the higher will be the number of staff required by them and hence higher will be their wages and benefits expenses.

Casino dealer wages and benefits - The cost driver will be number of table games. The higher the number of table games the higher will be the number of dealers required.