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

question 120

Multiple Choice

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.
$\begin{array}{lr}\text { Cost Driver } & \text { Amount Allocated } \\\text { Revenue } & \$ 200,000\\\text { Square feet } & 100,000 \\\text { Rooms } & 600,000 \\\text { Assets }(000 \mathrm{~s}) & 3,100,000\end{array}$ Determine the amount of nontraceable cost to be allocated to the Harborview Resort using revenue as an allocation base.

• A) $1,050,000.
• B) $1,950,000.
• C) $1,400,000.
• D) $2,600,000.
• E) $1,680,000.

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Definitions:

Fixed Costs

Expenses that do not change with the volume of production or sales and must be paid regardless of the business activity level.

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials, energy usage, or labor directly associated with production.

Flash Frozen

A method of freezing food quickly at extremely low temperatures to preserve its quality, nutrients, and taste.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and equipment leases.