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.)	$	8,800
Administrative and executive salaries		4,400
Interest on resort purchase		3,400
Advertising		600
Housekeeping		2,400
Depreciation on reservations computer		80
Room maintenance		880
Carpet-cleaning contract		50
Contract to repaint rooms		440
	$	21,050

	Pine Valley		Oak Glen		Mimosa		Birch Glen		Total
Revenue (000s)	$	6,150	$	9,190	$	10,180	$	7,530	$	33,050
Square feet		57,550		79,475		43,345		86,795		267,165
Rooms		86		122		66		174		448
Assets (000s)	$	95,795	$	141,875	$	75,075	$	59,650	$	372,395

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

1. Based on annual revenue, what amount of the central office costs are allocated to each resort?

Pine Valley

Oak Glen

Mimosa

Birch Glen

Total

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?

Allocation Base Total

Revenue

Square Feet

Number of Rooms

Assets

3. Using the cost pool system in requirement 2, how much of the central office costs would be allocated to each resort?

Allocation Base Pine Valley Oak Glen Mimosa Birch Glen Total

Revenue

Square feet

Number of rooms

Assets

Total cost allocated

Answer 1

Part 1
	Resorts	Revenue	Allocation of Costs	Computation
	Pine Valley	$                                           6,150	$                                    3,917	$21,050*6,150/33,050
	Oak Glen	$                                           9,190	$                                    5,853	$21,050*9,190/33,050
	Mimosa	$                                         10,180	$                                    6,484	$21,050*10,180/33,050
	Birch Glen	$                                           7,530	$                                    4,796	$21,050*7,530/33,050
	Total	$                                         33,050	$                                  21,050
Part 2
		Revenue	Square Feet	Rooms	Assets
	Fron Office Personnel	$                                           8,800
	Administrative and executive salaries	$                                           4,400
	Interest on Resort Purchase				$                                  3,400
	Advertising	$                                              600
	Housekeeping		$                                    2,400
	Depreciation on Reservation computer				$                                       80
	Room maintainance			$                                880
	Carpet-Cleaning contract		$                                         50
	Contract to repaint rooms			$                                440
	Total	$                                         13,800	$                                    2,450	$                             1,320	$                                  3,480
	Allocation of Office Costs	On the basis of:
	Resorts	Revenue	Square Feet	Rooms	Assets
	Pine Valley	$                                           2,568	$                                    3,837	$                             4,251	$                                  3,144
	Oak Glen	$                                              528	$                                       729	$                                397	$                                     796
	Mimosa	$                                              253	$                                       359	$                                194	$                                     513
	Birch Glen	$                                              895	$                                    1,326	$                                702	$                                     557
	Total Cost allocated	$                                           4,244	$                                    6,251	$                             5,544	$                                  5,010