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:

1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs to the Standard Guest Room and the Junior Suite, because over 90 percent of the models produced were one of these two models. How much overhead was allocated to each of the three models last year? Discuss why this might not be an accurate way to assign overhead costs to products.

2. Choice Hotels' production manager proposes allocating overhead by direct labor hours instead, since the different models require different amounts of labor. How much overhead would be allocated to each guest room (per unit and in total) using this method? Show all supporting calculations.

Choice Hotels Sales, Production, and Cost Information Overhead Costs Presidentia oo TypeStandard Junior Suite Type Cost Depreciation $3,20o,Cco ternarnce $1,800,0OO Purhasing5320,000 Inspection$850,00o $490,000 Supervision $1,70O,0co Supplies $190,00o Volume Price Unit costs 1150 1110 15 $140,000 $240,000$L,050,00n C50.CEO Mairn Direct materials | $30,000 $92,000 | $310.00 54,000 96,000 | $640,000 Manufactring$30,C00$30,000$30,00o Indirect Direct labor overhead Total Total unit cost $114,000 | $207,000 | $980,000 manufacurin $8,550,CcO Note : Manufacturing overhead costs are fixed They do not vary with the volume of marufacturinactivity Unit gross profit$26,000 $33,00O70,0co Direct labor hours1,200 1,300 5,940 Rate perhour $45.00 65.33$107.74