Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 64

On-line Vacation distributes advertising costs to its four resort sites in the Caribbean on the basis of the size of the resort budget. For this year, in round numbers, the budgets and allocation of $1 million advertising indirect costs are as follows:
a) Determine the allocation if the ABC method is used with a new basis. Define the activity as the advertising department at each resort. The cost driver is the number of guests during the year. b) Again use the ABC method, but now make the cost driver the total number of guest nights at each resort. The average number of lodging nights for guests at each site is as follows: c) Comment on the distribution of advertising costs using the two methods. Identify any other cost drivers that might be considered for the ABC approach that may reflect a realistic allocation of the costs.