Pebble Resorts operates a five-star hotel with a world-recognized championship golf course. It has a decentralized management structure. There are three divisions:
◆ Lodging (rooms, conference facilities)
◆ Food (restaurants and in-room service)
◆ Recreation (golf course, tennis courts, and so on)
Starting next month, Pebble will offer a two-day, two-person “getaway package” deal for $770. This deal includes:
◆ Two nights’ stay for two in an ocean-view room—separately priced at $704 ($352 per night for two).
◆ Two rounds of golf separately priced at $330 ($165 per round). One person can do two rounds, or two can do one round each.
◆ Candlelight dinner for two at the exclusive Pebble Pacific Restaurant—separately priced at $88 per person.
Samantha Lee, president of the Recreation Division, recently asked the CEO of Pebble Resorts how her division would share in the $770 revenue from the package. The golf course was operating at 100% capacity (and then some). Under the “getaway package” rules, participants who booked one week in advance were guaranteed access to the golf course. Lee noted that every “getaway” booking would displace a $165 booking. She stressed that the high demand reflected the devotion of her team to keeping the golf course rated in the “Best 10 Courses in the World” listings in Golf Monthly magazine. As an aside, she also noted that the Lodging and Food divisions only had to turn away customers on “peak-season events such as the New Year’s period.”
REQUIRED
1. Allocate the $770 “getaway package” revenue to the three divisions using:
a. The stand-alone revenue-allocation method.
b. The incremental revenue-allocation method (with Recreation first, then Lodging, and then Food).
Use unit selling prices as the weights in (a) and (b).
2. What are the pros and cons of (a) and (b) in requirement 1?