Cindy Liverly is the Corporate Director of Marketing for the Rhodes hotel chain. Rhodes operates upscale properties in five major cities. Each property contributes to the cost of employing the Corporate Director of Marketing as well as the newly appointed Corporate Revenue Manager. The question for Cindy is how to fairly allocate the costs of operating the Corporate Marketing department.

One of the hotel general managers thinks the fairest way to do so is by having each property pay an equal share of the costs. Another feels the costs should be allocated based upon a property's size. Yet another general manager feels that rooms sold, not size, should dictate the proportion to be paid. Cindy’s boss has even asked her to investigate allocation based upon the profits made by each hotel. Using the information below, help Cindy with her cost-allocation decision by answering the questions that follow.

Corporate Marketing Expense Office and Travel Expense $75,000 $60,000 Total Costs $240,000 $170,000 $410,000 Position Salary $165,000 $110,000 Corporate Marketing Director Corporate Revenue Manager Total Cost $275,000 $135,000 # of Rooms in Annual Property Occupancy 70.2%
68.6%
64.9%
71.1%
79.4%
Net Income $1,085,875 $1,518,984 $1,532,416 $1,932,222 $2,353,513 Property Denver Dallas Orlando Atlanta New York

a. What is the allocation amount for each hotel if the allocation is made on the basis of an “equal” per-property cost allocation?
Total Cost Number of Properties Cost per Property

b. What is the allocation amount for each hotel if the allocation is made on the basis of property size?
# of Rooms in Cost per Property Property % of Total Property Denver 425 Dallas 510 Orlando 820 Atlanta 466 New York SA Total 2,592

c. What is the allocation amount for each hotel if the allocation is made on the basis of number of rooms sold per year?
_ #of Rooms in Annual #ofRooms %of Costper Property Property Occupancy Sold Total Property Denver 425 70.2%
Dallas 510 68.6%
Orlando 820 64.9%
Atlanta 466 71.1%
New York 371 79.4%
Total

d. What is the allocation amount for each hotel if the allocation is made on the basis of net income earned?
% of Cost per Property Net Income Total Property Denver $1,085,875 LT Dallas $1,518,984 LLL Orlando $1,532,416 |
Atlanta $1,932,229 (
New York $2,353,513 Total $8,423,010 oe

e. If you were the general manager at the Orlando property, which cost allocation method would you prefer? Why?