Allocation of Central Costs; Profit Centers Woodland Hotels Inc. operates four resorts in theheavily wooded areas of northern California. The resorts are named after the predominant trees at theresort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office coststo 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:[LO 18-3]Front office personnel (desk, clerks, etc.) $ 8,000Administrative and executive salaries 4,000Interest on resort purchase 3,000Advertising 600Housekeeping 2,000Depreciation on reservations computer 80Room maintenance 800Carpet-cleaning contract 50Contract to repaint rooms 400$18,930Pine Valley Oak Glen Mimosa Birch Glen TotalRevenue (000s) $ 5,350 $ 7,995 $ 8,857 $ 6,550 $ 28,752Square feet 55,475 76,599 41,774 83,664 257,512Rooms 86 122 66 174 448Assets (000s) $92,345 $136,745 $72,355 $57,499 $358,944Required1. Based on annual revenue, what amount of the central office costs are allocated to each resort? What arethe shortcomings of this allocation method?2. Suppose that the current methods were replaced with a system of four separate cost pools with costscollected in the four pools allocated on the basis of revenues, assets invested in each resort, squarefootage, 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 eachresort? Is this system preferable to the single-allocation base system used in requirement 1? Why or why not?
Allocation of Central Costs; Profit Centers 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:
[LO 18-3]
Front office personnel (desk, clerks, etc.) $ 8,000
Administrative and executive salaries 4,000
Interest on resort purchase 3,000
Advertising 600
Housekeeping 2,000
Depreciation on reservations computer 80
Room maintenance 800
Carpet-cleaning contract 50
Contract to repaint rooms 400
$18,930
Pine Valley Oak Glen Mimosa Birch Glen Total
Revenue (000s) $ 5,350 $ 7,995 $ 8,857 $ 6,550 $ 28,752
Square feet 55,475 76,599 41,774 83,664 257,512
Rooms 86 122 66 174 448
Assets (000s) $92,345 $136,745 $72,355 $57,499 $358,944
Required
1. Based on annual revenue, what amount of the central office costs are allocated to each resort? What are
the shortcomings of this allocation method?
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? Is this system preferable to the single-allocation base system used in requirement 1? Why or why not?
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