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.) ............................. $ 8,000
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
Total .......................................................................................... $18,930

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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Pine Valley Oak Glen Mimosa Birch Glen Total Revenue (000s) $ 5,350 $ 7,995 $8,857 $ 6,550 $ 28,752 Square feet 55,475 83,664 257,512 76,599 122 $136,745 41,774 Rooms 86 66 174 448 Assets (000s) $92,345 $72,355 $57,499 $358,944