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

question 9

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.
$\begin{array}{lr}\text { Cost Driver } & \text { Amount Allocated } \\\text { Revenue } & \$ 200,000\\\text { Square feet } & 100,000 \\\text { Rooms } & 600,000 \\\text { Assets }(000 \mathrm{~s}) & 3,100,000\end{array}$ Using the information regarding the allocation of the $4 million to the four cost drivers, determine the operating profit of the Crystal Coast Resort.

• A) $1,500,000.
• B) $2,050,000.
• C) $2,785,000.
• D) $3,395,000.
• E) $4,215,000.

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