Question

Wical Rental Management Services manages four apartment buildings, each with a different owner. Wical’s CEO has observed that the apartment buildings with more expensive rental rates tend to require more of her time and also the time of her staff. The four apartment buildings incur a total annual operating expense of $7,363,733, and these operating expenses are traced directly to the apartment buildings for the purpose of determining the profit earned by the building owners. The annual management fee that Wical earns is based on a percentage of total annual operating expenses and is negotiated each year. For the current year, the fee rate is 6%, and Wical has the following information for current-year average rental rates and occupancy rates:

Apartment Complex	Number of Units			Average Occupancy			Average Rent
Cape Point		100			88	%	$	2,075
Whispering Woods		250			75			1,475
Hanging Rock		200			74			1,175
College Manor		350			84			1,075
Total		900

For the current year, Wical must choose between the number of units in each complex, the average occupancy, or the total annual rental revenue in each complex to allocate the management fee.

Required:

1. How much of the management fee would be charged to Cape Point under each of the three allocation bases (number of units, average occupancy, and total annual rental revenue, respectively)? (Do not round your intermediate calculations. Round your final answers to whole dollar amounts.)

multiple choice

• $35,853; $86,014; $106,538

• $49,092; $121,123; $85,003

• $1,852,182; $2,446,243; $1,959,571

• $54,623; $118,143; $86,922

Answer 1

Apartment Complex	# of Units	Average Occupancy	Average Rent	Annual Rental Revenue
Cape Point	100	88%	2075	182600
Whispering Woods	250	75%	1475	276562.5
Hanging Rock	200	74%	1175	173900
College Manor	350	84%	1075	316050
Total	900	321%	5800	949112.5
Operating Expenses	73,63,733.00
Management Fee @ 6% on operating expense is	441823.98
Allocation of management fee on different basis
No of units	490.9155333	per unit
Average Occupancy	1376.398692	per 1 %
Annual Rental Revenue	0.465512761	per 1 $ of rental revenue
Apartment Complex	# of Units	Average Occupancy	Annual Rental Revenue
Cape Point	$ 49092	$ 121123	$ 85003

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