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.)	$	11,500
Administrative and executive salaries		5,500
Interest on resort purchase		4,500
Advertising		600
Housekeeping		3,500
Depreciation on reservations computer		80
Room maintenance		1,150
Carpet-cleaning contract		50
Contract to repaint rooms		550
Costs to be allocated	$	27,430

    

	Pine Valley		Oak Glen		Mimosa		Birch Glen		Total
Revenue (000s)	$	8,750	$	13,075	$	14,485	$	10,710	$	47,020
Square feet		63,250		87,330		47,635		95,415		293,630
Rooms		86		122		66		174		448
Assets (000s)	$	105,290	$	155,900	$	82,510	$	65,575	$	409,275

Required:

1)Based on annual revenue, what amount of the central office costs are allocated to each resort? (Do not round intermediate calculations. Enter your answers in thousands rounded to the nearest dollar.)

	2)Suppose that the current method 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? (Enter your answers in thousands of dollars.)

	3)Using the cost pool system in requirement 2, how much of the central office costs would be allocated to each resort? (Do not round intermediate calculations. Enter your answers in thousands rounded to the nearest dollar.)

Answer 1

Allocation of central office cost to each resort based on annual revenue
Cost factor      =	Total cost
	Total revenue
=	27430
	47020
=	0.58
Resort	Revenue (a)	Cost factor (b)	Allocation (a X b)
Pine	8750	0.58	5,104
Oak	13075	0.58	7,628
Mimosa	14485	0.58	8,450
Birch	10710	0.58	6,248
Total Cost			27,430
Allocation of central office cost to each resort based on cost pool
Cost	Cost driver	Cost (a)	Total cost driver (b)	Cost factor (a / b)
Front office personnel (desk, clerks, etc.)	Revenue	11500	47020	0.2446
Administrative and executive salaries	Revenue	5500	47020	0.1170
Interest on resort purchase	Asset	4500	409275	0.0110
Advertising	Revenue	600	47020	0.0128
Housekeeping	Rooms	3500	448	7.8125
Depreciation on reservations computer	Revenue	80	47020	0.0017
Room maintenance	Rooms	1150	448	2.5670
Carpet-cleaning contract	Square feet	50	293630	0.0002
Contract to repaint rooms	Square feet	550	293630	0.0019
Resort	Cost factor (b)	Pine	Oak	Mimosa	Birch	Total Cost
Revenue (a)		8750	13075	14485	10710
Front office personnel (desk, clerks, etc.) (a X b)	0.2446	2,140	3,198	3,543	2,619	11,500
Administrative and executive salaries (a x b)	0.1170	1,023.50	1,529.40	1,694.33	1,252.76	5,500
Advertising (a x b)	0.0128	112	167	185	137	600
Depreciation on reservations computer (a x b)	0.0017	15	22	25	18	80
Allocation on the basis of revenue (A)		3,290	4,916	5,447	4,027
Asset (a)		105290	155900	82510	65575
Interest on resort purchase (a x b)	0.0110	1,158	1,714	907	721	4,500
Allocation on the basis of asset (B)		1,158	1,714	907	721	4,500
Rooms (a)		86	122	66	174
Housekeeping (a x b)	7.8125	672	953	516	1,359	3,500
Room maintenance (a x b)	2.5670	221	313	169	447	1,150
Allocation on the basis of rooms (C)		893	1,266	685	1,806
Square feet (a)		63250	87330	47635	95415
Carpet-cleaning contract (a x b)	0.0002	11	15	8	16	50
Contract to repaint rooms (a x b)	0.0019	118	164	89	179	550
Allocation on the basis of square feet (D)		129	178	97	195
Total Cost Allocated (A + B + C + D)		5,470	8,075	7,136	6,749	27,430