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.
Table 3: Sales, its percentages and allocation of fixed administrative expenses
|
| Last Year |
| This Year | |
Restaurants | Total sales | Percentage of total sales | Allocation of fixed administrative expenses based on percentage of total sales | Total sales | Percentage of total sales |
Sydney Harborside Eatery | $62,500,000 | 31.25% | $5,875,000 | $62,500,000 | 22.12% |
Malabar Garden Grill | $82,500,000 | 41.25% | $7,755,000 | $165,000,000 | 58.41% |
Oriental Taste Specialty | $55,000,000 | 27.50% | $5,170,000 | $55,000,000 | 19.47% |
Total | $200,000,000 | 100% | $18,800,000 | $282,500,000 | 100% |
Whereas, in Waikato, New Zealand, NZ Dairy Ltd, another subsidiary of Bright Inc. is focusing is producing dairy products specifically on butte in its factory located in Waikato Industrial Zone.
The factory is specifically producing two types of butter: salted and unsalted. The salted butter is sold using brand name Tetote (which means salted in Maori language) at $11 per unit and the unsalted is sold using the brand name Koretote (which means unsalted in Maori language) at a price of $14 per unit.
To produce the butter, DSO Dairy requires 5,000 litres of cow milk every month that costs $16,000. This $16,000 batch cost is allocated to the two products using number of units. Each batch of the cow milk yields 15,000 units of Tetote and 25,000 units of Koretote.
Either product can be processed further. It costs $31,550 to convert 15,000 units of Tetote into 15,000 units of Hauora (which means healthy in Maori). Likewise, it costs $14,320 to convert 25,000 units of Koretote into 25,000 units of Reka (sweet in Maori). Each unit of Hauora sells for $12, and each unit of Reka sells for $16.
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