Question
In Sydney, Australia, a subsidiary of Bright Inc., Opera Food & Beverage Company owns and operates three restaurants in Sydney. The company allocates its fixed
In Sydney, Australia, a subsidiary of Bright Inc., Opera Food & Beverage Company owns and operates three restaurants in Sydney. The company allocates its fixed administrative expenses to the three restaurants on the basis of sales dollars. Last year the fixed administrative expenses totaled $18,800,000 and were allocated as shown in the table below. This year the Malabar Garden Grill restaurant doubled its sales to $165 million. The sales levels in the other two restaurants remained unchanged. The company's sales data for this year were also shown in table 2 below. Fixed administrative expenses for this year remained unchanged at $18,800,000.
Regarding Opera Food & Beverage Company in Sydney, address the issue of fixed administrative expenses of $18,800,000 by; (a) Showing the allocation of the fixed administrative expenses among the three restaurants for this year using sales dollars as an allocation base. (b) Calculating the change in each restaurant's allocated cost from last year to this year. (c) Commenting on the usefulness of sales dollars as an allocation base. (d) Explaining the possible reasons why the manager of Malabar Garden is unhappy with the amount charged to Malabar Garden Restaurant this year.
Table 3: Sales, its percentages and allocation of fixed administrative expenses \begin{tabular}{|l|r|r|r|r|c|} \hline & \multicolumn{3}{|c|}{ Last Year } & \multicolumn{2}{c|}{ This Year } \\ \hline Restaurants & Total sales & Percentageoftotalsales & Allocationoffixedadministrativeexpensesbasedonpercentageoftotalsales & Total sales & Percentageoftotalsales \\ \hline Sydney Harborside Eatery & $62,500,000 & 31.25% & $5,875,000 & $62,500,000 & 22.12% \\ \hline Malabar Garden Grill & $82,500,000 & 41.25% & $7,755,000 & $165,000,000 & 58.41% \\ \hline Oriental Taste Specialty & $55,000,000 & 27.50% & $5,170,000 & $55,000,000 & 19.47% \\ \hline Total & $200,000,000 & 100% & $18,800,000 & $282,500,000 & 100% \\ \hline \end{tabular}Step by Step Solution
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