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?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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.) $ 8,400
Administrative and executive salaries   4,200
Interest on resort purchase   3,200
Advertising   600
Housekeeping   2,200
Depreciation on reservations computer   80
Room maintenance   840
Carpet-cleaning contract   50
Contract to repaint rooms   420
  $ 19,990
 

 

  Pine Valley Oak Glen Mimosa Birch Glen Total
Revenue (000s) $ 5,750 $ 8,595 $ 9,520 $ 7,040 $ 30,905
Square feet   56,510   78,035   42,565   85,260   262,370
Rooms   86   122   66   174   448
Assets (000s) $ 94,070 $ 139,310 $ 73,725 $ 58,595 $ 365,700
 

 

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?

 

 

 

 

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