SeaScape Resorts Owns and Operates Two Resorts in a Coastal

question 112

Multiple Choice

SeaScape 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.
The nontraceable operating costs of the resort amount to $3 million.By careful study,the management accountant at SeaScape has determined that,while the costs are not directly traceable,the total of $3 million could be fairly allocated to the four cost drivers as follows.
The Crystal Coast resort is likely to be favored in terms of a lower cost allocation under:

• A)Revenue-based allocation.
• B)Cost-driver based allocation.
• C)Cannot be determined from the information.
• D)Would be the same for both allocation methods. Because of the large amount of cost associated with the assets cost driver and because the Crystal Coast resort has a far higher proportion of the total assets,the revenue based allocation is likely to favor the Crystal Coast Resort. Calculations for 111 (in 000s):

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Definitions:

Weighted-Average

A statistical method used to attribute different weights to data points or components based on their significance.

Cost Flow

Describes the manner in which costs move through a company's accounts, from the point of initial recording to their ultimate impact on financial statements.

Physical Flow

Physical flow pertains to the actual movement and processing of goods and materials through a production system or supply chain, often measured to assess efficiency and effectiveness.

Specific Invoice Method

A method used in accounting to record the cost of goods sold based on the specific cost of individual items.