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. Amount of Central cost allocated to each Resort                                                                     (Amount in 000)

Particulars	Pink Valley	Oak Glen	Mimosa	Birch Glen
Central cost allocation	4865.25 [8350/44,880 * 26,150]	7271.65 [12,480/44,880 * 26,150]	8055.35 [13,825/44,880 * 26,150]	5957.75 [10,225/44,880 * 26,150]

2. Allocation of cost pools to various expenses

Particulars	Cost Pool
Front office personnel (desk, clerks, etc.)	Revenue
Administrative and executive salaries	Revenue
Interest on resort purchase	Revenue
Advertising	Revenue
Housekeeping	Number of room
Depreciation on reservations computer	Asset invested
Room maintenance	Number of room
Carpet-cleaning contract	Square feet
Contract to repaint rooms	Number of room

3. Central office cost allocation as per cost pool

( Amount in 000)

Particulars	Pink Valley	Oak Glen	Mimosa	Birch Glen
Front office personnel (desk, clerks, etc.)	2027.96	3031.02	3357.68	2483.34
Administrative and executive salaries	986.07	1473.80	1632.63	1207.50
Interest on resort purchase	800.02	1195.72	1324.59	979.67
Advertising	111.63	166.84	184.83	136.70
Housekeeping	633.48	898.66	486.16	1281.70
Depreciation on reservations computer	20.58	30.48	16.12	12.82
Room maintenance	209.24	296.83	160.58	423.35
Carpet-cleaning contract	10.77	14.87	8.11	16.25
Contract to repaint rooms	101.74	144.33	78.08	205.85
Total Cost allocated	4901.49	7252.55	7248.78	6747.18