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Part Il - After Cost Allocation (40 points). JT O'Dea, owner of the O Dea Inn, is confused by the fully-allocated financial statements that suggest the Moses Inn's lounge is losing money. As he sees it, there are three alternatives: 1. Continue the lunge operation as is.- 2. Close the lounge and convert the space to a conference room- 3. Lease the space to Leaseco. The following table summarized the O'Dea Inn fully-allocated monthly income statements: Rooms Food Lounge Total Sales $250,000 S60,000 S30,000 $340,000+ Fixed expenses Variable expenses Departmental Profit Allocated overheadd Pretax income Income taxes Net Income 20,00010,000 20,000 150,000 30,000 90,000 25.000 S60.000$5,000 30,000- 120,000 190,000v 140,000 50,000 15.000 $35.000- 20,000 10,000 25,000 80,000 Additional Information: 1. Closing the lunge would reduce overhead costs by $10,000. Leasing the lounge to Leaseco could reduce overhead costs by $5,000. The space can be leased to Leaseco for 10% of sales. Leaseco is a reputable operator, and JT believes that it will operate the lounge as effectively as O'Dea Inn has done in the past. Annual forecasted lounge sales are expected to be $400,000. If the lounge is closed, room departmental profits are expected to decrease by 4% while food department sales are expected to increase by 8% The lounge space, if used for conferences, is expected to yield monthly departmental profits of $10,000. 2. 3. 4. Required-* Based on the above information, recommend the best alternative to JT O'Dea. Support your solution with numbers. Consider only relevant costs.* 1. 2. Based on your recommendation in part 1, what would be the increase in net income for O'Dea Inn

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