107. 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.
Harborview Crystal Coast Total
Revenue (000s) $3,500 $6,500 $10,000
Square feet 75,000 225,000 300,000
Rooms 60 140 200
Assets (000s) $100,000 $400,000 $500,000
Revenue/room $90 $120
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.
Cost Driver Amount Allocated
Revenue $200,000
Square feet 100,000
Rooms 600,000
Assets (000s) 3,100,000
Determine the amount of nontraceable cost to be allocated to the Harborview Resort using
revenue as an allocation base.
108. 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.
Harborview Crystal Coast Total
Revenue (000s) $3,500 $6,500 $10,000
Square feet 75,000 225,000 300,000
Rooms 60 140 200
Assets (000s) $100,000 $400,000 $500,000
Revenue/room $90 $120
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.
Cost Driver Amount Allocated
Revenue $200,000
Square feet 100,000
Rooms 600,000
Assets (000s) 3,100,000
What is the operating profit of the Crystal Coast Resort, using revenue as an allocation base?
109. 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.
Harborview Crystal Coast Total
Revenue (000s) $3,500 $6,500 $10,000
Square feet 75,000 225,000 300,000
Rooms 60 140 200
Assets (000s) $100,000 $400,000 $500,000
Revenue/room $90 $120
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.
Cost Driver Amount Allocated
Revenue $200,000
Square feet 100,000
Rooms 600,000
Assets (000s) 3,100,000
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.
110. 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.
Harborview Crystal Coast Total
Revenue (000s) $3,500 $6,500 $10,000
Square feet 75,000 225,000 300,000
Rooms 60 140 200
Assets (000s) $100,000 $400,000 $500,000
Revenue/room $90 $120
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.
Cost Driver Amount Allocated
Revenue $200,000
Square feet 100,000
Rooms 600,000
Assets (000s) 3,100,000
Using the information regarding the allocation of the $4 million to the four cost drivers,
determine the operating profit of the Crystal Coast Resort.
111. 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.
Harborview Crystal Coast Total
Revenue (000s) $3,500 $6,500 $10,000
Square feet 75,000 225,000 300,000
Rooms 60 140 200
Assets (000s) $100,000 $400,000 $500,000
Revenue/room $90 $120
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.
Cost Driver Amount Allocated
Revenue $200,000
Square feet 100,000
Rooms 600,000
Assets (000s) 3,100,000
The Crystal Coast resort is likely to be favored in terms of a lower cost allocation under:
112. Which of the following is not a principle of employment contracts?
113. If a manager’s evaluation is performed before the manager’s efforts and decisions have
been made, then the evaluation is performed:
114. What is an appropriate performance evaluation measure for the mature stage of a
product’s life cycle?
115. What is an appropriate performance evaluation measure for the early stage of a product’s
life cycle?
116. Which of the following is not an important formal management control system at the
individual employee level?
117. Which of the following is an advantage of decentralization?
118. Which of the following is not a characteristic of the discretionary-cost approach?
119. Which of the following is not a criterion for choosing the cost allocation method?
120. Which of the following is not a step to maximize the value of nonfinancial measures, as
suggested by Ittner and Larcker?
121. Of the following is not an objective of management control?
122. Tough-Built Corporation produces specialized truck body components, specializing in
hydraulic lifts for dump trucks. Founded 35 years ago by George Halloway, the firm now employs
150 workers and has annual sales of over $10 million. George operates the firm in a highly
centralized way, and retains control over all changes in operations. He is a regular visitor to the
production area, which helps him “keep his finger on the pulse of the firm.”
Although George Halloway is now 67 years old, he has no apparent management successor, and
has always hand-picked his department heads and staff personnel. He has been generous to
those who worked for him, paying substantial bonuses each year to the employees based on his
personal evaluation of each worker. Just six weeks ago, a heart attack convinced George to
consider retirement, and he decided to sell the firm to his employees. You are assigned the task
of recommending a set of strategic performance measures for the firm, assuming that the new
worker management wants to operate as a decentralized firm.
Required:
What major management problems do you foresee in the transition from sole owner to employee
ownership?
123. Harrison Hartwell and Zenith is a successful law firm employing 26 professionals. There
is an internal controversy over allocation of the $104,000 purchase cost of a highly sophisticated
electronic law library. Each professional employee of the firm has been assessed $4,000 as a
charge against the profit distribution account of each of the 26 members affected. In addition, it
is expected to cost about $2,600 per month to update information for the library system, resulting
in a monthly $100 assessment against each professional in the firm.
Required:
(a) As a new junior member of the professional legal group of 26, why might you not like the
proposed electronic library cost allocation?
(b) Propose an alternate allocation method for both the initial purchase cost and the updating
charge that is more equitable (fair).
(c) Could one argue for no allocation at all in this case? On what basis?
124. Brantley Inc. manufactures hair brushes that sell at wholesale for $6.00 per unit.
Budgeted production in both 2015 and 2016 was 2,000 units and budgeted fixed overhead was
$25,000 in each year. There was no beginning inventory in 2015. The following data summarized
the 2015 and 2016 operations:
2015 2016
Units sold 1,900 2,100
Units produced 2,000 2,000
Costs:
Variable factory overhead per unit $20.00 $20.00
Fixed factory overhead $25,000 $25,000
Variable marketing per unit $2.00 $2.00
Fixed Selling and Administrative $10,000 $10,000
Required:
Determine income under both full costing and variable costing and explain the difference.
