Pacific Hotels operates a centralized call center for the reservation needs of i

Question

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: Division Time Usage(thousands of minutes) Number of Reservations (thousands) Luxury 280 112 Resort 140 168 Standard 560 350 Budget 420 770 During this period, the cost of the call center amounted to $880,000 for personnel and $690,000 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.) 2. Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost). (Do not round intermediate calculations.)

Explanation / Answer

Req A: Total Overheads (880,000+ 690,000) = $ 1570,000 Total Time usage of each Group (280+140+560+420) = 1400 (thousands in min) Overehad allocation rate based on time = Total overheads / Total time usage = ( 1570,000 /1400) = $ 1121.43 per time usage(in thousand min) Luxury Resort Standard Budget Total Time usgae 280 140 560 420 1400 Number of reservations' 112 168 350 770 1400 Allocated Overheads (@ $ 1121.43 per time usage) 314000 157000 628000 471000 1570000 Req B: Dual rate: Division Personnel(based on time) = Total overhead of division/total time usage = 880,000/1400 = $ 628.57 per time usage Division Equipment and other(Based on Reservation) = Total Expense of div / Number of reservation =690,000 /1400 = $492.86 per res. Luxury Resort Standard Budget Total Time usgae 280 140 560 420 1400 Number of reservations' 112 168 350 770 1400 Allocated Overheads Personnel (@ 628.57 per usage) 176000 88000 352000 264000 880000 Equipment(@492.86 per reservation) 55200 82800 172500 379500 690000 Total cost 231200 170800 524500 643500 1570000

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