Task: Sales-Based Allocations
Frontier’s Markets has three grocery stores in the metropolitan Salt Lake area. Central costs are allocated using sales as the cost-allocation base. The following are budgeted and actual sales during November:
Sunnyville Wedgewood Capital
Budgeted sales $600,000 $1,000,000 $400,000
Actual sales 600,000 700,000 500,000
Central costs of $180,000 are to be allocated in November.
Q1. Compute the central costs allocated to each store with budgeted sales as the cost-allocation base.
Q2. Compute the central costs allocated to each store with actual sales as the cost-allocation base.
Q3. What advantages are there to using budgeted rather than actual sales for allocating the central costs?