Konig Enterprises, Ltd., owns and operates three restaurants in Vancouver, B.C.
ID: 2479931 • Letter: K
Question
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 2013, the fixed administrative expenses totaled $990,000. These expenses were allocated as follows:
Restaurants
Rick’s
Harborside
Imperial
Garden
Ginger
Wok
Total
Total sales—2013
$
16,400,000
$
11,600,000
$
12,000,000
$
40,000,000
Percentage of total sales
41
%
29
%
30
%
100
%
Allocation (based on the above
percentages)
$
405,900
$
287,100
$
297,000
$
990,000
During 2014, 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 2014 sales data were as follows:
Restaurants
Rick’s
Harborside
Imperial
Garden
Ginger
Wok
Total
Total sales—2014
$
17,000,000
$
23,500,000
$
9,500,000
$
50,000,000
Percentage of total sales
34
%
47
%
19
%
100
%
Fixed administrative expenses remained unchanged at $990,000 during 2014.
Required:
1.
Using sales dollars as an allocation base, show the allocation of the fixed administrative expenses among the three restaurants for 2014.
Restaurants
Rick’s Harborside
Imperial Garden
Ginger Wok
Total
$0
2.
Compare your allocation from (1) above to the allocation for 2013 and determine the increase or decrease in allocation? (Decreases should be indicated by a minus sign.)
Restaurants
Rick’s Harborside
Imperial Garden
Ginger Wok
Total
$0
Tasman Products, Ltd., of Australia has a Maintenance Department that services the equipment in the company’s Forming Department and Assembly Department. The cost of this servicing is charged to the operating departments on the basis of machine-hours. Cost and other data relating to the Maintenance Department and to the other two departments for the most recent year are presented below.
Data for the Maintenance Department follow:
Budget
Actual
Variable costs for lubricants
$
380,000
*
$
488,000
Fixed costs for salaries and other
$
181,000
$
194,100
*Budgeted at $25 per machine-hour.
Data for the Forming and Assembly departments follow:
Percentage of
Peak-Period
Capacity Required
Machine-Hours
Budget
Actual
Forming Department
60%
9,800
11,800
Assembly Department
40%
5,400
4,400
Total
100%
15,200
16,200
The level of fixed costs in the Maintenance Department is determined by peak-period requirements.
Required:
Management would like data to assist in comparing actual performance to planned performance in the Maintenance Department and in the other departments.
1.
How much Maintenance Department cost should be charged to the Forming Department and to the Assembly Department?
Forming Department
Assembly Department
Total
Variable costs
0
Fixed costs
0
Total cost charged
0
0
0
2.
Compute the amount of the actual Maintenance Department costs that should not be charged to the other departments?
Variable Cost
Fixed Cost
Total
Cost not charged (spending variance)
0
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 2013, the fixed administrative expenses totaled $990,000. These expenses were allocated as follows:
Explanation / Answer
1. Allocation of Fixed Administrative Expenses for 2014 :
2. Increase or Decrease in allocation of Fixed Administrative Expenses
In case of Imperial Garden though the Fixed Administrative Expenses allocation looks like increase for 2014 but it is not the real increase when compated to the increase of Sales volume on 2014.
Restaurants Sales ($50,000,000) % Fixed Administrative Expenses ($990,000) Rick’s Harborside 34% $3,36,600 Imperial Garden 47% $4,65,300 Ginger Wok 19% $1,88,100 Total 100% $9,90,000Related Questions
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