Pacific Hotels operates a centralized call center for the reservation needs of i
ID: 2573888 • Letter: P
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:
During this period, the cost of the call center amounted to $850,000 for personnel and $610,000 for equipment and other costs.
Required:
Dual rates based on time used (for personnel costs) and number of reservations (for equipment and other cost).
Division Time Usage(thousands of minutes) Number of Reservations (thousands) Luxury 380 128 Resort 190 192 Standard 760 400 Budget 570 880Explanation / Answer
Activity rate Personnel cost = Total personnel cost / Total time usage (850,000/(380+190+760+570) = $ 447.37 per time usage Equipment and other cost = Total equipment cost / Number of reservations (610000/(128+192+400+880)) = $ 381.25 per reservations Luxury Resort Standard Budget Time usage 380 190 760 570 Number of reservations 128 192 400 880 Allocated cost: Personnel cost(@447.37 per time usage) 170000 85000 340000 255000 Equipment and other cost($381.25per reservation) 48800 73200 152500 335500 Allocated cost 218800 158200 192500 590500
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