Bradbo owned two adjoining restaurants, the Pork Palace and the Chicken Hut. Each restaurant was treated as a profit center for performance evaluation purposes. Although the restaurants had separate kitchens, they shared a central baking facility. The principal costs of the baking area included materials, supplies, labor, and depreciation and maintenance on the equipment.
Bradbo allocated the monthly costs of the baking facility to the two restaurants based on the number of tables served in each restaurant during the month using dual allocation and equal sharing of fixed costs. In April, the costs were $30,000, of which $16,000 were fixed. The Pork Palace served 4,400 tables, while the Chicken Hut served 3,600 tables.
The amount of the joint cost that should have been allocated to the Chicken Hut in April is calculated to be:

Question

Quizplus · Accepted Answer

Using the dual allocation method with equal sharing of fixed costs, the total cost of the baking facility is allocated based on the number of tables served in each restaurant.

First, calculate the variable cost per table:

Variable cost per table = (Total cost - Fixed cost) / Total tables served 
= ($30,000 - $16,000) / (4,400 + 3,600) 
= $14,000 / 8,000 
= $1.75 per table

Next, allocate the fixed cost equally between the two restaurants:

Fixed cost allocated to each restaurant = $16,000 / 2 = $8,000

Finally, allocate the variable cost based on the number of tables served:

Chicken Hut's share of variable cost = $1.75 x 3,600 = $6,300

Total cost allocated to Chicken Hut = Fixed cost + Variable cost 
= $8,000 + $6,300 
= $14,300

Therefore, the joint cost that should have been allocated to the Chicken Hut in April is $14,300.

Bradbo Owned Two Adjoining Restaurants, the Pork Palace and the Chicken