Holiday Resorts, Inc. operates four resort hotels in the heavily wooded areas of eastern Texas. The resorts

Question:

Holiday Resorts, Inc. operates four resort hotels in the heavily wooded areas of eastern Texas. The resorts are named after the predominant trees at the resort: Oak Glen, Birch Glen, Mimosa, and Walnut Arbor. Holiday allocates its central office costs to each of the four hotels according to the annual revenue it generated. For the current year, these costs (000s omitted) were as follows:

Front office personnel (desk clerks,…)			$6,000
Administrative and executive salaries			4,000
Interest on resort purchase			2,000
Advertising			600
Housekeeping			1000
Depreciation on reservations computer			80
Room maintenance			800
Carpet-cleaning contract			50
Contract to repaint rooms			400
	Total Central Office Costs		$14,930

These are pertinent data relating to the four hotels:

	Oak Glen	Walnut Arbor	Birch Glen	Mimosa	Total
Revenue (000s)	$4,550	$8,975	$9,678	$6,220	$29,423
Square feet	65,122	77,375	38,655	82,556	$263,708
Rooms	88	125	64	175	$452
Assets (000s)	$88,125	$132,775	$68,545	$55,883	$345,328

Required
1. Based on annual revenue, what amount of the central office costs are allocated to each hotel? What are the shortcomings of this allocation method?
2. Suppose that the current method 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 hotel, 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 hotel? Is this system preferable to the single-allocation base system used in requirement 1? Why or why not?