Question

Pacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows:

Division	Time Usage (thousands of minutes)			Number of Reservations (thousands)
Luxury		400			120
Resort		200			150
Standard		800			360
Budget		600			870

During this period, the cost of the call center amounted to $840,000 for personnel and $650,000 for equipment and other costs.

Required:

a. Determine the allocation to each of the divisions using the following:

1. A single rate based on time used.

luxury

Pacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows:

Division	Time Usage (thousands of minutes)			Number of Reservations (thousands)
Luxury		400			120
Resort		200			150
Standard		800			360
Budget		600			870

During this period, the cost of the call center amounted to $840,000 for personnel and $650,000 for equipment and other costs.

Required:

a. Determine the allocation to each of the divisions using the following:

1. A single rate based on time used.

Department Allocated Cost

Luxury

Resort

Standard

Budget

2. Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost).

Department Allocated Cost

Luxury

Resort

Standard

Budget

Answer 1

(1) Allocation based on a single rate based on time used

Particulars	Luxury	Resort	Standard	Budget
Total cost allocation	298,000	149,000	596,000	447,000

(2) Allocation of cost based on dual rates

Particulars	Luxury	Resort	Standard	Budget
Call centre cost	168,000	84,000	336,000	252,000
Equipment cost	52,000	65,000	156,000	377,000
Total cost	220,000	149,000	492,000	629,000