Managerial Accounting - Tiptop Street Deli's owner is disturbed
Managerial Accounting
Question 1 (Points 90)
Tiptop Street Deli's owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analysis for the year Just ended.
|
|
$ |
$ |
|
Sales |
|
67,500 |
|
Less: Cost of sales |
|
30,000 |
|
Gross profit |
|
37,500 |
|
Less: Operating Expenses: |
|
|
|
Wages of counter staff |
18,000 |
|
|
Paper material costs (e.g. Napkins) |
6,000
|
|
|
Utilities (allocated) |
4,350 |
|
|
Depreciation of counter equipment and furniture |
3,750
|
|
|
Depreciation of building (allocated) |
6,000 |
|
|
Deli managerial salaries (allocated) |
4,500
|
|
|
Total |
|
42,600 |
|
Loss on ice cream counter |
|
(5,100)
|
Required:
1. In the above owner’s analysis, what costs (amounts) are incorrectly allocated?
2. Show a better analysis and indicate the net financial effect (profit or loss) of dropping the ice cream counter.
Question 2 (Points 10)
Give two examples of sunk costs, and explain why they are irrelevant in decision making.
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Rating:
/5
Solution: Managerial Accounting - Tiptop Street Deli's owner is disturbed