Exercise $11-10($static$)$ Sales Dollars as an Allocation Base for Fixed Costs $[$LO$11-4]$

Konig Enterprises owns and operates three restaurants. The company allocates its fixed administrative expenses to those restaurants based on sales dollars. Last year the fixed administrative expenses totaled $$2,000,000$ and were allocated as follows:

$$RestaurantsTotalRick$$s HarborsideImperial GardenGinger WokTotal sales$$Last Year$ $16,000,000$$ $15,000,000$$ $9,000,000$$ $40,000,000$Percentage of total sales$40\%37\mathrm{.}5\%22\mathrm{.}5\%100\%$Allocation $($based on the above percentages$)$$ $800,000$$ $750,000$$ $450,000$$ $2,000,000$

This year Imperial Garden 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:

$$RestaurantsTotalRick$$s HarborsideImperial GardenGinger WokTotal 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:

Using sales dollars as an allocation base, show the allocation of the fixed administrative expenses among the three restaurants for this year.

Calculate the change in each restaurant$$s allocated cost from last year to this year.

Is sales dollars a good base for allocation of fixed costs?