Sales Dollars as an Allocation Base for Fixed Costs LO11–4 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.

Last year the fixed administrative expenses totaled $2,000,000 and were allocated as follows:

Restaurants Rick’s Harborside Imperial Garden Ginger Wok Total Total sales—Last Year ������������ $16,000,000 $15,000,000 $9,000,000 $40,000,000 Percentage of total sales ������ 40% 37.5% 22.5% 100%
Allocation (based on the above percentages) ���������� $800,000 $750,000 $450,000 $2,000,000 This year the Imperial Garden restaurant increased its sales by $10 million. The sales levels in the other two restaurants remained unchanged. The company’s sales data for this year were as follows:

Restaurants Rick’s Harborside Imperial Garden Ginger Wok Total Total sales—This Year ������������ $16,000,000 $25,000,000 $9,000,000 $50,000,000 Percentage of total sales ������ 32% 50% 18% 100%

Fixed administrative expenses for this year remained unchanged at $2,000,000.
Required:
1. Using sales dollars as an allocation base, show the allocation of the fixed administrative expenses among the three restaurants for this year.
2. Calculate the change in each restaurant’s allocated cost from last year to this year. As the manager of the Imperial Garden, how would you feel about the amount that has been charged to you for this year?
3. Comment on the usefulness of sales dollars as an allocation base.