Sand and Sea Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.$\begin{array}{ll}&\text { Harborview } & \text { Crystal Coast } & \text { Total }\
\text { Revenue }(000 \mathrm{~s}) & \$ 3,500 & \$ 6,500 & \$ 10,000\
\text { Square feet } & 75,000 & 225,000 & 300,000 \
\text { Rooms } & 60 & 140 & 200\
\text { Assets }(000 \mathrm{~s}) &\$ 100,000 & \$ 400,000 &\$ 500,000
\end{array}$

The nontraceable operating costs of the resort amount to $ \$ 4,000,000 $. By careful study, the management accountant at Sand and Sea has determined that, while the costs are not directly traceable, the total of $ \$ 4 $ million could be fairly allocated to the four cost drivers as follows.
$\begin{array}{lr}
\text { Cost Driver } & \text { Amount Allocated } \
\text { Revenue } & \$ 200,000\
\text { Square feet } & 100,000 \
\text { Rooms } & 600,000 \
\text { Assets }(000 \mathrm{~s}) & 3,100,000
\end{array}$Using the information regarding the allocation of the $4 million to the four cost drivers, determine the amount of cost to be allocated to the Harborview Resort.

Question

Sand and Sea Resorts owns and operates two resorts in a coastal town. Both resorts are located on a barrier island that is connected to the mainland by a high bridge. One resort is located on the beach and is called the Crystal Coast Resort. The other resort is located on the inland waterway which passes between the town and the mainland; it is called the Harborview Resort. Some key information about the two resorts for the current year is shown below.$\begin{array}{ll}&\text { Harborview } & \text { Crystal Coast } & \text { Total }\
\text { Revenue }(000 \mathrm{~s}) & \$  3,500 & \$  6,500 & \$  10,000\
\text { Square feet } & 75,000 & 225,000 & 300,000 \
\text { Rooms } & 60 & 140 & 200\
\text { Assets }(000 \mathrm{~s}) &\$ 100,000 & \$ 400,000 &\$ 500,000
\end{array}$

The nontraceable operating costs of the resort amount to $ \$ 4,000,000 $. By careful study, the management accountant at Sand and Sea has determined that, while the costs are not directly traceable, the total of $ \$ 4 $ million could be fairly allocated to the four cost drivers as follows.
$\begin{array}{lr}
\text { Cost Driver } & \text { Amount Allocated } \
\text { Revenue } & \$ 200,000\
\text { Square feet } & 100,000 \
\text { Rooms } & 600,000 \
\text { Assets }(000 \mathrm{~s}) & 3,100,000
\end{array}$Using the information regarding the allocation of the $4 million to the four cost drivers, determine the amount of cost to be allocated to the Harborview Resort.

Quizplus · Accepted Answer

To determine the amount of cost to be allocated to the Harborview Resort, we need to calculate the proportion of each cost driver attributable to Harborview and then apply those proportions to the amounts allocated for each cost driver.1. Revenue: Harborview's revenue is $3,500,000 out of a total of $10,000,000. So, for the $200,000 allocated based on revenue, Harborview's share is $ \frac{3,500}{10,000} \times 200,000 = \$70,000 $.2. Square feet: Harborview has 75,000 square feet out of a total of 300,000. So, for the $100,000 allocated based on square feet, Harborview's share is $ \frac{75,000}{300,000} \times 100,000 = \$25,000 $.3. Rooms: Harborview has 60 rooms out of a total of 200. So, for the $600,000 allocated based on rooms, Harborview's share is $ \frac{60}{200} \times 600,000 = \$180,000 $.4. Assets: Harborview's assets are $100,000,000 out of a total of $500,000,000. So, for the $3,100,000 allocated based on assets, Harborview's share is $ \frac{100,000}{500,000} \times 3,100,000 = \$620,000 $.Adding these amounts together: $70,000 + $25,000 + $180,000 + $620,000 = $895,000.

Sand and Sea Resorts Owns and Operates Two Resorts in a Coastal