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
	$	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?

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.

	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total
Revenue ($ in 000s)	8750	13075	14485	10710	47020
Percent of total revenue	18.61%	27.81%	30.81%	22.78%	100.00%
Allocated costs ($ in 000s)(with rounding off)	5105	7628	8451	6249	27430
Allocated costs ($ in 000s)(without rounding off)	5104	7628	8450	6248	27430

Note: In the absence of specific instructions regarding rounding off, the allocated costs will differ based on what rounding off is used. Allocated costs with rounding off percent of total revenue to 2 decimal places and without any rounding off have been shown above. Kindly round off as required. For any clarifications, kindly mention under comments section.

2.

Allocation Base	$ in 000s
Revenue:
Front office personnel	11500
Administrative and executive salaries	5500
Advertising	600	17600
Square feet:
Carpet-cleaning contract		50
Number of rooms:
Housekeeping	3500
Room maintenance	1150
Contract to repaint rooms	550	5200
Assets:
Interest on resort purchase	4500
Depreciation on reservations computer	80	4580
Total		27430

3.

Allocation Base	Pine Valley	Oak Glen	Mimosa	Birch Glen	Total
Revenue	3275	4894	5422	4009	17600
Square feet	11	15	8	16	50
Number of rooms	998	1416	766	2020	5200
Assets	1178	1745	923	734	4580
Total cost allocated ($ in 000s)	5462	8070	7119	6779	27430