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?
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 | |
| 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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