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)

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 more accurately 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.

Division Time Usage

(thousands of minutes) Number of

Reservations

(thousands)

Luxury 750 45.0

Resort 500 67.5

Standard 2,000 187.5

Budget 1,750 450.0

During this period, the cost of the call center amounted to $2,100,000 for personnel and $1,500,000 for equipment and other costs.

Requirement 1:

Determine the cost allocation to each of the divisions using the following:

(a)

A single rate based on time used. (Round allocation rates to 2 decimal places. Omit the “$” sign in your response.)

Department Total Allocated Cost

Luxury $

Resort

Standard

Budget

(b)

Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost). (Round allocation rates to 2 decimal places. Omit the “$” sign in your response.)

Department Total Allocated Cost

Luxury $

Resort

Standard

Budget

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