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