Question

Four local businesses; a boat cruise company, a local hotel, a restaurant, and an ice-cream stand, have decided to offer a special “night on the Rideau” for $250 per couple. “Night on the Rideau includes: dinner, a boat cruise, ice cream and a night at a hotel.

If purchased separately, this offer could cost $315 (hotel $150, boat cruise $50, restaurant $110, ice cream $5).

Required

1. Allocate the revenue of $250 between the three local businesses using the stand alone method.

2. Allocate the revenue of $250 between the three local businesses using the incremental revenue. Assume the order of preference is as follows:

1. Restaurant
2. Ice Cream
3. Boat Cruise
4. Hotel

Answer 1

A. Allocation using stand alone method is as follows:

Hotel: $250 x $150 / $315 = $119.05
Boat Cruise: $250 x $50 / $315 = $39.68
Restaurant: $250 x $110 / $315 = $87.30
Ice Cream: $250 x $5 / $315 = $3.97

B. Allocation using incremental revenue:

Restaurant: $110 [Balance: $250 - $110 = $140]
Ice Cream: $5 [Balance: $140 - $5 = $135
Boat Cruise: $50 [Balance: $135 - $50 = $85]
Hotel: $85 [Balance: $85 - $85 = 0]

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