Premier Resorts (PR) operates a five-star hotel with a championship golf course. PR has a decentralized management structure, with three divisions:
Lodging (rooms, conference facilities)
Food (restaurants and in-room service)
Recreation (golf course, tennis courts, swimming pool, and so on)
Starting next month, PR will offer a two-day, two-person “getaway package” for $ 800.
This deal includes the following:

Jenny Lee, president of the recreation division, recently asked the CEO of PR how her division would share in the $ 800 revenue from the getaway package. The golf course was operating at 100% capacity. Currently, anyone booking the package was guaranteed access to the golf course. Lee noted that every “getaway” booking would displace $ 300 of other golf bookings not related to the package. She emphasized that the high demand reflected the devotion of her team to keeping the golf course rated one of the “Best 10 Courses in the World” by Golf Monthly. As an aside, she also noted that the lodging and food divisions had to turn away customers during only “peak-season events such as the New Year’s period.”

1. Using selling prices, allocate the $ 800 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)
2. What are the pros and cons of the two methods in requirement 1?
3. Because the recreation division is able to book the golf course at 100% capacity, the company CEO has decided to revise the getaway package to only include the lodging and food offerings shown previously. The new package will sell for $ 720. Allocate the revenue to the lodging and food divisions using the following:
a. The Shapley value method
b. The weighted Shapley value method, assuming that lodging is three times as likely to sell as thefood

  • CreatedMay 14, 2014
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