Question

Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts are named after the predominant trees at the resort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office costs to each of the four resorts according to the annual revenue the resort generates. For the current year, the central office costs (000s omitted) were as follows:

Front office personnel (desk, clerks, etc.)	$	10,900
Administrative and executive salaries		5,300
Interest on resort purchase		4,300
Advertising		600
Housekeeping		3,300
Depreciation on reservations computer		80
Room maintenance		1,090
Carpet-cleaning contract		50
Contract to repaint rooms		530
	$	26,150

	Pine Valley		Oak Glen		Mimosa		Birch Glen		Total
Revenue (000s)	$	8,350	$	12,480	$	13,825	$	10,225	$	44,880
Square feet		62,215		85,890		46,835		93,820		288,760
Rooms		86		122		66		174		448
Assets (000s)	$	103,565	$	153,335	$	81,120	$	64,480	$	402,500

Required:

1. Based on annual revenue, what amount of the central office costs are allocated to each resort?

2. Suppose that the current methods were replaced with a system of four separate cost pools with costs collected in the four pools allocated on the basis of revenues, assets invested in each resort, square footage, and number of rooms, respectively. Which costs should be collected in each of the four pools?

3. Using the cost pool system in requirement 2, how much of the central office costs would be allocated to each resort?

Answer 1

(1)
	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total
Revenue (000s)	8,350	12,480	13,825	10,225	44,880
Square feet	62,215	85,890	46,835	93,820	2,88,760
Rooms	86	122	66	174	448
Assets (000s)	1,03,565	1,53,335	81,120	64,480	4,02,500
Revenue Sharing in Percentage terms	19%	28%	31%	23%	100%
Central Office cost Allocation based on Annual Revenue (000s)	4,865	7,272	8,055	5,958	26,150

(2) & (3)		Pine Valley	Oak Glen	Mimosa	Birch Glen	Total (000s)
	Square Footage in Percentage terms	22%	30%	16%	32%	100%
	Number of Rooms in Percentage terms	19%	27%	15%	39%	100%
	Assets Invested in Each resort in Percentage terms	26%	38%	20%	16%	100%
	Basis of Allocation	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total (000s)
Front office personnel (desk, clerks, etc.)	Based on Revenue	2,028	3,031	3,358	2,483	10,900
Administrative and executive salaries	Based on Revenue	986	1,474	1,633	1,207	5,300
Interest on resort purchase	Based on Square Footage	926	1,279	697	1,397	4,300
Advertising	Based on Revenue	112	167	185	137	600
Housekeeping	Based on Number of Rooms	633	899	486	1,282	3,300
Depreciation on reservations computer	Based on Assets Invested in each Resorts	21	30	16	13	80
Room maintenance	Based on Number of Rooms	209	297	161	423	1,090
Carpet-cleaning contract	Based on Square Footage	11	15	8	16	50
Contract to repaint rooms	Based on Number of Rooms	102	144	78	206	530
		5,028	7,336	6,622	7,165	26,150