Choice Hotels produces three models of guest rooms: the standard guest room, Junior Suite, and Presidential Suite.

The Standard Guest Room comes with basic furniture, bathroom plan, and amenities. It sells for $140,000 to franchise hotels.

The Junior Suite model is larger and includes an enhanced furniture selection, upgraded bathroom fixtures, more comfortable bedding. The guest room is considered an upgrade from the standard guestroom model. The Junior Suite sells for $240,000 to franchise hotels.

The Presidential Suite model is a custom-made guest room with floors and walls constructed from specialty wood. The drapes are made from the traditional flax-based canvass. It has the look and feel of a room in the White House, with modern comforts and security. The Presidential Suite sells for $1,050,000 to franchise hotels. Workers who build the Presidential Suite are specialized craftsmen. They earn twice the hourly rate of those working on the Standard Guest Room and Junior Suite models. The labor rate is fully burdened to include benefits.

Most of Choice Hotels guest room sales come from the Standard Guest Room and the Junior Suite, but sales of the Presidential Suite model have been growing. The company's sales, production, and cost information for last year is provided to the right:

3. Use activity-based costing to allocate the costs of overhead per unit and in total to each guest room type. Show all supporting calculations in the space provided.

5. At the current selling price, is the company covering its true cost of production of the Presidential Suite? Briefly discuss. 6

8. What should Choice Hotels do if the quantity of the Presidential Suite Guest Rooms sold at the new price falls to 10 per year?

9. What should Choice Hotels do if the price of the Presidential Suite cannot exceed $1,050,000?