Wical Rental Management Services manages four apartment buildings, each with a different owner. Wicals top management has

Wical Rental Management Services manages four apartment buildings, each with a different owner. Wical’s top management has observed that the apartment buildings with more expensive rental rates tend to require more of her time and also the time of her staff. The four apartment buildings incur a total monthly operating expense of $7,345,733, and these operating expenses are traced directly to the apartments buildings for the purpose of determining the profit earned by the building owners. The management fee that Wical earns is based on a percentage of total operating expenses and is negotiated each year. For the current year the fee rate is 6 percent, and Wical has the following information for the month of November, including average rental rates and occupancy rates.

 

				Average Occupancy	Average Rent per Unit
			Units
Cape Point			100	88%	$1,895
Whispering Woods			250	77%	1295
Hanging Rock			200	72%	995
College Manor			350	82%	895
Total			900
Expenses and Fees (000s)
Operating Expenses		$7,345,733
Management fee @	6%	$ 440,744

Required
1. Assuming November is a representative month for the year, how should the annual management fee be allocated to the four apartment buildings? Explain your choice of method and show how much of the management fee would be allocated to each apartment building using your method.
2. What ethical issues, if any, are involved in the choice of method in part 1 above?

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1. The solution show below uses total revenues for the four apartment buil dings as the basis for the allocation. Total revenue takes into account both the number of units and average rent, and therefore woul dprovide areasonable basis for allocating the costs to be billed to the apartm ent complexes. Each unit would in effect pay a portion of the management fee in proportion to its rental revenue. This methodis fair because the apartments buil dings with higher rents usemor of Wical's time and therefore should be charged a higher proportion of the management fee, based on total revenues