Pacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows. ETT Time Usage (thousands of minutes) Number of Reservations Division (thousands) Luxury 220 144 Resort 110 176 Standard 440 336 Budget 330 944 During this period, the cost of the call center amounted to $850,000 for personnel and $700,000 for equipment and other costs. Required: a-1. Determine the allocation to each of the divisions using a single rate based on time used. a-2. Determine the allocation to each of the divisions using the Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost).
Pacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows. ETT Time Usage (thousands of minutes) Number of Reservations Division (thousands) Luxury 220 144 Resort 110 176 Standard 440 336 Budget 330 944 During this period, the cost of the call center amounted to $850,000 for personnel and $700,000 for equipment and other costs. Required: a-1. Determine the allocation to each of the divisions using a single rate based on time used. a-2. Determine the allocation to each of the divisions using the Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pacific Hotels operates a centralized call center for the reservation needs of its hotels.
Costs associated with use of the center are charged to the hotel group (Iluxury, resort,
standard, and budget) based on the length of time of calls made (time usage). Idle time
of the reservation agents, time spent on calls in which no reservation is made, and the
fixed cost of the equipment are allocated based on the number of reservations made
in each group. Due to recent increased competition in the hotel industry, the company
has decided that it is necessary to better allocate its costs in order to price its services
competitively and profitably. During the most recent period for which data are
available, the use of the call center for each hotel group was as follows.
ETT
Time Usage
(thousands of
minutes)
Number of
Reservations
Division
(thousands)
Luxury
220
144
Resort
110
176
Standard
440
336
Budget
330
944
During this period, the cost of the call center amounted to $850,000 for personnel and
$700,000 for equipment and other costs.
Required:
a-1. Determine the allocation to each of the divisions using a single rate based on time
used.
a-2. Determine the allocation to each of the divisions using the Dual rates based on
time used (for personnel costs) and number of reservations (for equipment and other
cost).
Complete this question by entering your answers in the tabs below.
Req A1
Req A2
Determine the allocation to each of the divisions using a single rate based on time used. (C
calculations.)
Department
Allocated Cost
Luxury
Resort
Standard
Budget
Expert Solution
Step 1
Lets understand the basics.
There are two method for cost allocation which are,
Single rate - In this method, all the costs are divided into various department based on the single rate as basis.
Dual rate - In this method, cost are dividend into various department based on the two rates of allocation.
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