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.) $ 9,000 Administrative and executive salaries 4,500 Interest on resort purchase 3,500 Advertising 600 Housekeeping 2,500 Depreciation on reservations computer 80 Room maintenance 900 Carpet-cleaning contract 50 Contract to repaint rooms 450 $ 21,580 Pine Valley Oak Glen Mimosa Birch Glen Total Revenue (000s) $ 6,350 $ 9,490 $ 10,515 $ 7,775 $ 34,130 Square feet 58,065 80,190 43,720 87,560 269,535 Rooms 86 122 66 174 448 Assets (000s) $ 96,660 $ 143,160 $ 75,730 $ 60,175 $ 375,725

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

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.)	$	9,000
Administrative and executive salaries		4,500
Interest on resort purchase		3,500
Advertising		600
Housekeeping		2,500
Depreciation on reservations computer		80
Room maintenance		900
Carpet-cleaning contract		50
Contract to repaint rooms		450
	$	21,580

	Pine Valley		Oak Glen		Mimosa		Birch Glen		Total
Revenue (000s)	$	6,350	$	9,490	$	10,515	$	7,775	$	34,130
Square feet		58,065		80,190		43,720		87,560		269,535
Rooms		86		122		66		174		448
Assets (000s)	$	96,660	$	143,160	$	75,730	$	60,175	$	375,725

Required:

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

solve for allocated cost for each: pine valley, oak glen, mimosa, birch glen, and total

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?

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? (Enter your answers in thousands of dollars.)

solve chart below

	Allocation Base Total Revenue Square feet Number of rooms Assets

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

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.)

solve chart below

	Allocation Base Pine Valley Oak Glen Mimosa Birch Glen Total Revenue $ Square feet Number of rooms Assets Total cost allocated $ $ $ $

Answer 1

1. Based on Annual revenue

	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total
Revenue (000s)	$6,350	$9,490	$10,515	7,775	$34,130		$		$
Cost to be allocated	$4,015[$21,580/34,130]*6,350	$6,000[$21,580/34,130]*9,490	$6,649[$21,580/34,130]*10,515	$4,916[$21,580/34,130]*7,775
Rounded off to nearest dollar

2.First stage allocation - to allocate cost to cost drivers

Cost	Cost driver	Cost (a)	explanation
Front office personnel (desk, clerks, etc.)	Revenue	9,000	front desk is activity which is related to revenue generated
Administrative and executive salaries	Revenue	4,500	executive salaries providing services to customers should be allocated on the basis of revenue
Interest on resort purchase	Asset	3,500	resort is an asset so interest should be allocated on basis of assets
Advertising	Revenue	600	advertising is related to revenue generated
Housekeeping	Rooms	2,500	housekeeping provided in rooms depends on number of room
Depreciation on reservations computer	Revenue	80	as computers are used for reservations, they should be allocated on basis of revenue
Room maintenance	Rooms	900	room maintenance should be allocated on basis of number of rooms
Carpet-cleaning contract	Square feet	50	carpet depends on square feet
Contract to repaint rooms	Square feet	450	rooms repaint should be allocated on basis of rooms

Allocation Base	Total
Revenue	$14,180[$9000+4500+600+80]
Square feet	$500[$50+$450] .
Number of rooms	$3,400[$2500+900]
Assets	$3,500

3.Second stage allocation - allocating cost to resorts on the bases of above allocated costs

Cost allocated = Total cost/ cost driver

Required:

Allocation Base	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total
Revenue	$2,638[$14,180/34,130]*$6,350	$3,943[$14,180/34,130]*$9,490	$4,369[$14,180/34,130]*$10,515	$3,230[$14,180/34,130]*$7,775	$14,180				$
Square feet	$108[$500/269,535]*58,065	$149[$500/269,535]*$80,190	$81[$500/269,535]*$43,720	$162[$500/269,535]*$87,560	$500
Number of rooms	$653[$3,400/448]*86	$926[$3400/448]*122	$501[$3,400/448]*66	$1321[$3,400/448]*174	$3,400
Assets	$900[$3,500/375,725]*96,660	$1,334[$3,500/375,725]*$143,160	$706[$3,500/375,725]*$75,730	$561[$3,500/375,725]*$60,175	$3,500
Total cost allocated	$4,299	$6,352	$5,657	$5,274	$21,580		$

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