Restaurants Imperial Garden Ginger Wok Rick's Total Harborside Total sales-Last Year ... Percentage of total sales Allocation (based on the above percentages).... $16,000,000 40% $15,000,000 37.5% $9,000,000 $40,000,000 22.5% $800,000 $750,000 $450,000 $2,000,000 Restaurants Imperial Garden Rick's Harborside Ginger Wok Total Total sales-This Year Percentage of total sales $16,000,000 32% $9,000,000 18% $25,000,000 $50,000,000 ...... 50% 100%
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Sales Dollars as an Allocation Base for Fixed Costs
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:
This year the Imperial Garden restaurant increased its sales by $10 million. The sales levels in the other two restaurant remained unchanged. The company’s sales data for this year were as follows:
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.
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