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.)	$	10,000
Administrative and executive salaries		5,000
Interest on resort purchase		4,000
Advertising		600
Housekeeping		3,000
Depreciation on reservations computer		80
Room maintenance		1,000
Carpet-cleaning contract		50
Contract to repaint rooms		500
	$	24,230

	Pine Valley		Oak Glen		Mimosa		Birch Glen		Total
Revenue (000s)	$	7,750	$	11,580	$	12,830	$	9,490	$	41,650
Square feet		60,660		83,735		45,655		91,455		281,505
Rooms		86		122		66		174		448
Assets (000s)	$	100,975	$	149,485	$	79,080	$	62,855	$	392,395

Please answer the following questions:

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

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Woodland Hotels Inc.
Answer 1	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total	Note
Revenue	7,750.00	11,580.00	12,830.00	9,490.00	41,650.00	A
Revenue %	18.61%	27.80%	30.80%	22.79%	100.00%	B=A/Sum of A
Allocation of central office costs	4,508,583.43	6,736,696.28	7,463,887.15	5,520,833.13	24,230,000.00	C= $ 24,230,000* B

Answer 2
Calculation of ABC rates for overhead		D	E	F=D/E
Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Front office personnel (desk, clerks, etc.)	Rooms	10,000,000.00	448.00	22,321.43
Administrative and executive salaries	Revenue (000s)	5,000,000.00	41,650.00	120.05
Interest on resort purchase	Assets (000s)	4,000,000.00	392,395.00	10.19
Advertising	Revenue (000s)	600,000.00	41,650.00	14.41
Housekeeping	Rooms	3,000,000.00	448.00	6,696.43
Depreciation on reservations computer	Assets (000s)	80,000.00	392,395.00	0.20
Room maintenance	Rooms	1,000,000.00	448.00	2,232.14
Carpet-cleaning contract	Square feet	50,000.00	281,505.00	0.18
Contract to repaint rooms	Square feet	500,000.00	281,505.00	1.78
Total Cost		24,230,000.00

Answer 3		See E	G	H=G*E	I	J=I*E	K	L=K*E	M	N=M*E
Allocation table			Pine Valley	Oak Glen	Mimosa	Birch Glen
Activity cost pool	Cost Driver	ABC Rates	Activity used	Cost assigned	Activity used	Cost assigned	Activity used	Cost assigned	Activity used	Cost assigned
Front office personnel (desk, clerks, etc.)	Rooms	22,321.43	86.00	1,919,642.86	122.00	2,723,214.29	66.00	1,473,214.29	174.00	3,883,928.57
Administrative and executive salaries	Revenue (000s)	120.05	7,750.00	930,372.15	11,580.00	1,390,156.06	12,830.00	1,540,216.09	9,490.00	1,139,255.70
Interest on resort purchase	Assets (000s)	10.19	100,975.00	1,029,319.95	149,485.00	1,523,821.66	79,080.00	806,126.48	62,855.00	640,731.92
Advertising	Revenue (000s)	14.41	7,750.00	111,644.66	11,580.00	166,818.73	12,830.00	184,825.93	9,490.00	136,710.68
Housekeeping	Rooms	6,696.43	86.00	575,892.86	122.00	816,964.29	66.00	441,964.29	174.00	1,165,178.57
Depreciation on reservations computer	Assets (000s)	0.20	100,975.00	20,586.40	149,485.00	30,476.43	79,080.00	16,122.53	62,855.00	12,814.64
Room maintenance	Rooms	2,232.14	86.00	191,964.29	122.00	272,321.43	66.00	147,321.43	174.00	388,392.86
Carpet-cleaning contract	Square feet	0.18	60,660.00	10,774.23	83,735.00	14,872.74	45,655.00	8,109.09	91,455.00	16,243.94
Contract to repaint rooms	Square feet	1.78	60,660.00	107,742.31	83,735.00	148,727.38	45,655.00	81,090.92	91,455.00	162,439.39
Total Cost assigned				4,897,939.70		7,087,373.00		4,698,991.04	ekkarill92 Next > < Previous Related Solutions Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts... 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.) $ 10,000 Administrative and executive salaries 5,000 Interest... Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts... Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. 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