Welcome Inns is a chain of motels serving business travelers in Arizona and southern Nevada. The chain has grown from one motel in 2007 to five motels. In 2010, the owner of the company decided to set up an internal accounting department to centralize control of financial information. (Previously, local CPAs handled each motel's bookkeeping and financial reporting.) The accounting office was opened in January 2010 by renting space adjacent to corporate headquarters in Glendale, Arizona. All motels have been supplied with personal computers and modems by which to transfer information to central accounting on a weekly basis. The accounting department has budgeted fixed costs of $85,000 per year. Variable costs are budgeted at $26 per hour. In 2010, actual cost for the accounting department was $182,500. Further information is as follows:

Required:
1. Suppose the total costs of the accounting department are allocated on the basis of 2010 sales revenue. How much will be allocated to each motel?
2. Suppose that Welcome Inns views 2009 sales figures as a proxy for budgeted capacity of the motels. Thus, fixed accounting department costs are allocated on the basis of 2009 sales, and variable costs are allocated according to 2010 usage multiplied by the variable rate. How much accounting department cost will be allocated to each motel?
3. Comment on the two allocation schemes. Which motels would prefer the method in Requirement 1? The method in Requirement 2?Explain.

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Actual Revenues Actual Hours of Accounting 2009 2010 2010 Boulder City Kingman Flagstaff Glendale $337,500 450,000 360,000 540,000 562,500 $431,800 508,000 381,000 635,000 584,200 1,475 400 938 562 375