Problem 12-45 Cost Allocations: Comparison of Dual and Single Rates (LO 12-6) Pa
ID: 2594624 • Letter: P
Question
Problem 12-45 Cost Allocations: Comparison of Dual and Single Rates (LO 12-6)
Pacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows:
During this period, the cost of the call center amounted to $850,000 for personnel and $630,000 for equipment and other costs.
Required:
a. Determine the allocation to each of the divisions using the following:
1. A single rate based on time used. (Do not round intermediate calculations.)
Department: Allocated Cost
Luxury
Resort
Standard
Budget
2. Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost). (Do not round intermediate calculations.)
Department: Allocated Cost
Luxury
Resort
Standard
Budget
Division Time Usage(thousands of minutes) Number of Reservations (thousands) Luxury 340 105 Resort 170 135 Standard 680 375 Budget 510 885Explanation / Answer
Solution:
1. Allocation of Cost on Single rate based on time used:
Solution:
1. Allocation of Cost on Single rate based on time used:
Department Time Usage (Thousand of Minutes) Nos of Reservations (Thousands) Allocated Cost - Personnel Allocated Cost - Equipment and Others Allocated Cost - Total Luxary 340 105 170000 126000 296000 Resort 170 135 85000 63000 148000 Standard 680 375 340000 252000 592000 Budget 510 885 255000 189000 444000 Total 1700 1500 850000 630000 1480000 2. Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost) Department Time Usage (Thousand of Minutes) Nos of Reservations (Thousands) Allocated Cost - Personnel Allocated Cost - Equipment and Others Allocated Cost - Total Luxary 340 105 170000 44100 214100 Resort 170 135 85000 56700 141700 Standard 680 375 340000 157500 497500 Budget 510 885 255000 371700 626700 Total 1700 1500 850000 630000 1480000