Question
The Crystal Coast Ocean Resort (CCOR) is a large, family-owned resort located on one of the finest beaches in North Carolina. The Resort is locally
The Crystal Coast Ocean Resort (CCOR) is a large, family-owned resort located on one of the finest beaches in North Carolina. The Resort is locally called the "Ramada Inn: Crystal Coast Ocean Resort", because it has a contractual
relationship with Ramada Inn, Inc which requires Ramada to provide reservation services and certain marketing services. In turn CCOR pays an annual fee to Ramada and displays the Ramada Inn sign. Ramada has the right, under contract, to require CCOR to meet Ramada standards for resort services, cleanliness, etc, and regularly visits CCOR to make sure that these standards are being met. CCOR's main building has a T-configuration, where the top of the T is road-side and the bottom of the T is at the beach. This allows all rooms to have at least a partial view of the beach. There are five types of rooms for guests, ocean front (facing the ocean, at the bottom of the T), ocean view
(along the sides of the T), pool side (first floor, with patios having direct access to the pool), and one and two bedroom suites that are located at the top of the T. These rooms are distributed as follows.
No. of Rooms
Ocean Front
50
Ocean View
250
Pool Side
18
One Bedroom Suite
16
Two Bedroom Suite
16
350
The season for CCOR is year-round because of the mild winters, though the occupancy rates vary from 100% during the summer months to less than 50% in the winter months.The average annual occupancy rate for each type of
rooms is 80%, 75%, 60%, 50% and 50% for the ocean front, ocean view, pool side, one room and two room suites, respectively.Because the resort is popular with families, the average number of persons per room is greater than
for some other motels or hotels.The average number of occupants is three for the ocean front, ocean view, and pool side rooms, four for the one bedroom suite, and six for the two-bedroom suite.The suites are also somewhat
larger, 500 square feet for the one bedroom suite, and 900 square feet for the two-bedroom suite, while all other room are 300 square feet.
CCOR does not have some of the amenities of competing resorts, but instead competes on value pricing and reliable service.It does not offer special services such as room service, exercise room, restaurant, or lounge but it sets
high standards for room cleanliness and for the appearance and cleanliness of the pool and grounds. Also, CCOR offer a free breakfast and a free afternoon snack.
Because of high demand in summer months, CCOR sets relatively high market prices during this season, ranging from $125 to $350 per room depending on room type and day of week.Prices are lower in the fall and spring, and
substantially lower in the winter.In order to have better information about price setting and profitability analysis for each of the five room types:ocean front, ocean view, pool side, one bedroom and two bedroom suites, CCOR has gathered additional information to help it determine the cost for each occupied room.Les Broom, the accounting manager, assembled the following data.The data includes information on the four annual resource costs taken
directly from CCOR's accounting reports, as well as activity and cost driver information developed by Les.
Annual Resource Costs at CCOR
The following is a list of the nine activities at CCOR identified by Les, as well as information he developed to assign resource costs to these activities.Les performed a careful analysis and determined the approximate percentage of each type of resource costs that could be allocated to each of the nine activities.
The following activity-consumption cost drivers are used to assign activity costs to cost objects:
Activities
Cost Driver
Housekeeping
square feet
Laundry
number of occupants
Grounds and Pool
number of rooms
Registration
number of occupied rooms
Breakfast room
number of occupants
Administration
number of occupied rooms
Security
number of rooms
Room repair and maintenance
square feet
Utilities
square feet
The cost drivers are interpreted as follows.Housekeeping costs are allocated to the room type based on the number of square feet in the room.Laundry is allocated to the room type based on the number of occupants in that
room type for the year.Grounds and pool expenses are allocated an equal amount to each room.Registration is allocated based on the number of occupied rooms, that is, the number of nights a room type is occupied).The other
activities are allocated using the cost drivers in a similar way.
In addition to the cost of the nine activities, CCOR has direct costs for each type of room, as shown below.These direct costs are incurred each night a room is occupied.
Deliverables:
Using the information in the case above:
- Determine the yearly total operating (direct and resource) costs for CCOR. (5 points)
- Determine the total cost per room by room type using volume based costing method.Assume overhead allocated by total number of occupied rooms.An occupied room is defined as a room that is occupied for that night.
- (15 points)
- Use the information in the case above to determine the ABC-based unit costs for each occupied room for each room type. (35 points)
- Calculate yearly total costs per room type for both the volume based method in question 2 and ABC method in question 3. (15 points)
- Comment on what management insights are created with the volume vs ABC analysis of profitability by room type.What competitive strategy does CCOR employ?Based on the strategy and the cost per room analysis, what
- recommendations would you make to management concerning potential marketing strategies CCOR could suggest to Ramada? (20 points)
- Based on the calculated costs per room, determine a pricing structure and complete an income statement for both volume based and activity based costing by room type.Comment on how you would price the rooms differently
- based on ABC vs. volume based costing? (10 points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Lets break down the task step by step 1 Yearly Total Operating Costs for CCOR Combine direct costs p...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started