Reference no: EM131666176
Question: Revenue allocation, bundled products. Boca Resorts (BR) operates a five-star hotel with a worldclass spa. BR has a decentralized management structure, with three divisions:
- Lodging (rooms, conference facilities)
- Food (restaurants and in-room service)
- Spa Starting next month, BR will offer a two-day, two-person "getaway package" for $1,000. This deal includes the following:
Jennifer Gibson, president of the spa division, recently asked the CEO of BR how her division would share in the $1,000 revenue from the getaway package. The spa was operating at 100% capacity. Currently, anyone booking the package was guaranteed access to a spa appointment. Gibson noted that every "getaway" booking would displace $300 of other spa bookings not related to the package. She emphasized that the high demand reflected the devotion of her team to keeping the spa rated one of the "Best 10 Luxury Spas in the World" by Travel 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 $1,000 getaway-package revenue to the three divisions using:
a. The stand-alone revenue-allocation method
b. The incremental revenue-allocation method (with spa first, then lodging, and then food)
2. What are the pros and cons of the two methods in requirement 1?
3. Because the spa division is able to book the spa 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 $800. 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 the food.