Chapter 8, Problem 8.60SC

Decide whether to discontinue a department (Learning Objective 4)

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 for additional background. (The components of the Caesars serial case can be completed in any order.)

What follows are the income statements for Caesars Entertainment Corporation for the three years ending December 31, 2012 through 2014.

Requirements

Note: To answer these questions, calculate a segment margin for each of the departments. For the purpose of this case only, calculate segment margin as revenues less direct expenses. (We are modifying the concept of segment margin slightly here, given the information that is publicly available. We are essentially assuming that the direct expenses are the variable expenses.)

Using the statements of operations (income statements) given, answer the following questions.

1. 1. Calculate the segment margin for the three departments: Casinos, Food and Beverage, and Rooms.
2. 2. Given the segment margins that you calculated, should Caesars discontinue any of the three departments? Why or why not?
3. 3. What expenses are likely to be included in “Miscellaneous expenses”? Should these expenses be allocated to the three departments if Caesars is evaluating whether it should discontinue any departments? Why or why not?