Konig Enterprises, Ltd., owns and operates three restaurants in Vancouver, B.C. The company allocates its fixed administrative expenses to the three restaurants on the basis of sales dollars. During 2008, the fixed administrative expenses totaled $2,000,000. These expenses were allocated as follows:
During 2009, the following year, the Imperial Garden restaurant increased its sales by $10 million. The sales levels in the other two restaurants remained unchanged. The company’s 2009 sales data were as follows:
Fixed administrative expenses remained unchanged at $2,000,000 during 2009.
1. Using sales dollars as an allocation base, show the allocation of the fixed administrative expenses among the three restaurants for 2009.
2. Compare your allocation from (1) above to the allocation for 2008. As the manager of the imperial Garden, how would you feel about the amount that has been charged to you for 2009?
3. Comment on the usefulness of sales dollars as an allocation base.