Cost Allocation Proposal Prepared for Boca Vista Golf

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Cost Allocation ProposalPrepared forBoca Vista
Golf Country Club

• October 23, 2007
• Neil Clark
• Caitlin Keys
• Courtney Lavigne
• Kelly Petrilla
• Joe Popplewell

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Preview

• Background information
• Caitlin
• Current and proposed allocation methods
• Kelly
• Explored but negated allocation methods
• Courtney
• Overall golf segment analysis
• Joe
• Concluding remarks
• Neil

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Background Issues

• Private Member-Owned
• Not-for-profit organization
• S. Florida Community w/ 1800 homes
• 100 home annual turnover
• Currently half are members
• Membership now required
• Average homeowner age of 66 years
• 3 Type of Memberships Available

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• Social Membership
• Dining room
• Card rooms
• Pool
• Fitness center
• Tennis Membership
• Social benefits
• Court time
• Golf Membership
• Social Tennis benefits
• Complimentary green fees

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Cost Structure

• Total revenues must equal total expenses
• Policy that no membership subsidizes another
• Direct costs are traced
• Indirect costs are allocated
• Social Membership benefits most from indirect
  costs

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Goals

• Price memberships such that
• 1. No cross-subsidization
• 2. Increase golf membership

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Current Allocations
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Incremental Cost Allocation
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Allocation Method Uncertainties

• Assignment of support and operating department
  cost pools.
• Use of separate fixed variable cost pools.
• Assigning cost to cost pools.
• Identify best allocation base.
• Identify best allocation method.

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Allocation Methods

• Direct
• Ignores interaction among support departments
• Step-Down
• Provided with no allocation bases for support
  departments
• Reciprocal
• Provided with no allocation bases for support
  departments
• Stand-Alone
• Allocations use weights based on users of cost
  object

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Golf Segment of BVGCC

• Currently one of the largest assets
• -Recreation
• -Ambiance and enhanced property values
• Overall decline of memberships
• -South Florida and BVGCC
• -More members opting elsewhere
• -Management concerned of viability
• GOAL Increase memberships without
  cross-subsidization

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Golf Segment Financial Analysis

• Current Cost Allocations
• -Relevant Membership Costs 11,770
• -Average Number of Rounds 93
• -Cost of Average Round at BVGCC 127
• -Average Cost of Golf Elsewhere 55
• -Indifference Point for Members 214 rounds

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Golf Segment Financial Analysis

• Proposed Incremental Cost Allocations
• -Relevant Membership Costs 4,700
• -Average Number of Rounds 93
• -Cost of Average Round at BVGCC 51
• -Average Cost of Golf Elsewhere 55
• -Indifference Point for Members 85 rounds

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Golf Segment Financial Analysis

• Separate Golf Membership with Proposed
  Allocations
• -Relevant Membership Costs 2,673
• -Average Number of Rounds 93
• -Cost of Average Round at BVGCC 29
• -Average Cost of Golf Elsewhere 55
• -Indifference Point for Members 49 rounds

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Final Recommendations

• Incremental costing
• No cross-membership subsidizing
• Straight forward and simple
• Allow for separate purchase of golf membership
• Average age of 66
• Increase membership

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Questions?