1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs...

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1. The cost-allocation system Choice Hotels has been usingallocates over 90 percent of overhead costs to the Standard GuestRoom and the Junior Suite, because over 90 percent of the modelsproduced were one of these two models. How much overhead wasallocated to each of the three models last year? Discuss why thismight not be an accurate way to assign overhead costs toproducts.
2. How would the use of more than one cost pool improve ChoiceHotels’ cost allocation?
3. Choice Hotels' production manager proposes allocatingoverhead by direct labor hours instead, since the different modelsrequire different amounts of labor. How much overhead would beallocated to each guest room (per unit and in total) using thismethod? Show all supporting calculations.
Choice Hotels Sales, Production, and CostInformation
RoomType Standard Guest Room Junior Suite Presidential Suite Type Cost
Volume 150 110 25 Depreciation $3,200,000
Price $140,000 $240,000 $1,050,000 Maintenance $1,800,000
Unit costs Purchasing $320,000
Direct materials $30,000 $92,000 $310,000 Inspection $850,000
Direct labor $54,000 $85,000 $640,000 Indirect materials $490,000
Manufacturing $30,000 $30,000 $30,000 Supervision $1,700,000
overhead Supplies $190,000
Total unitcost $114,000 $207,000 $980,000 Total manufacturing overhead cost $8,550,000
Unit gross profit $26,000 $33,000 $70,000 Note: Manufacturingoverhead costs are fixed. They do not vary with the volume ofmanufacturing activity.
Direct labor hours 1,200 1,300 5,940
Rate per hour $45.00 $65.38 $107.74

Answer & Explanation Solved by verified expert

4.3 Ratings (840 Votes)

1 Particulars Standard Guest Room Junior Suite Presidential Suite Total Volume 150 110 25 285 Volume in 53 39 9 100 Manufacturing OD Cost 450000000 330000000 75000000 855000000 As mentioned in given case The Manufacturing overhead costs are fixed They do not vary with the volume See Answer

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1. The cost-allocation system Choice Hotels has been usingallocates over 90 percent of overhead costs to the Standard GuestRoom and the Junior Suite, because over 90 percent of the modelsproduced were one of these two models. How much overhead wasallocated to each of the three models last year? Discuss why thismight not be an accurate way to assign overhead costs toproducts.2. How would the use of more than one cost pool improve ChoiceHotels’ cost allocation?3. Choice Hotels' production manager proposes allocatingoverhead by direct labor hours instead, since the different modelsrequire different amounts of labor. How much overhead would beallocated to each guest room (per unit and in total) using thismethod? Show all supporting calculations.Choice Hotels Sales, Production, and CostInformationRoomTypeStandard Guest RoomJunior SuitePresidential SuiteTypeCostVolume15011025Depreciation$3,200,000Price$140,000$240,000$1,050,000Maintenance$1,800,000Unit costsPurchasing$320,000Direct materials$30,000$92,000$310,000Inspection$850,000Direct labor$54,000$85,000$640,000Indirect materials$490,000Manufacturing$30,000$30,000$30,000Supervision$1,700,000overheadSupplies$190,000Total unitcost$114,000$207,000$980,000Total manufacturing overhead cost$8,550,000Unit gross profit$26,000$33,000$70,000Note: Manufacturingoverhead costs are fixed. They do not vary with the volume ofmanufacturing activity.Direct labor hours1,2001,3005,940Rate per hour$45.00$65.38$107.74

1. The cost-allocation system Choice Hotels has been usingallocates over 90 percent of overhead costs to the Standard GuestRoom and the Junior Suite, because over 90 percent of the modelsproduced were one of these two models. How much overhead wasallocated to each of the three models last year? Discuss why thismight not be an accurate way to assign overhead costs toproducts. 2. How would the use of more than one cost pool improve ChoiceHotels’ cost allocation? 3. Choice Hotels' production manager proposes allocatingoverhead by direct labor hours instead, since the different modelsrequire different amounts of labor. How much overhead would beallocated to each guest room (per unit and in total) using thismethod? Show all supporting calculations. Choice Hotels Sales, Production, and CostInformation
RoomType	Standard Guest Room	Junior Suite	Presidential Suite	Type	Cost
Volume	150	110	25	Depreciation	$3,200,000
Price	$140,000	$240,000	$1,050,000	Maintenance	$1,800,000
Unit costs				Purchasing	$320,000
Direct materials	$30,000	$92,000	$310,000	Inspection	$850,000
Direct labor	$54,000	$85,000	$640,000	Indirect materials	$490,000
Manufacturing	$30,000	$30,000	$30,000	Supervision	$1,700,000
overhead				Supplies	$190,000
Total unitcost	$114,000	$207,000	$980,000	Total manufacturing overhead cost	$8,550,000
Unit gross profit	$26,000	$33,000	$70,000	Note: Manufacturingoverhead costs are fixed. They do not vary with the volume ofmanufacturing activity.

Direct labor hours	1,200	1,300	5,940
Rate per hour	$45.00	$65.38	$107.74