BBQ & Balloons

Four friends - John, Paul, Ringo, and George - have decided to put a stand outside a shopping centre entrance for selling barbecue and balloons to members of the public during a weekend. The enterprise was named BBQ & Balloons.

Question 1

Each barbecue is sold for $2.00 and each balloon is sold for $1.00. Throughout the two days, the four friends were able to sell 2,000 barbecues and 1,000 balloons. The four friends did not have to bother about the stock of sausage and bread or balloons. They made an arrangement with a supplier and had to pay only $0.25 per barbecue served (a slice of bread and a sausage) and $0.03 for each balloon.

For the sake of remuneration, the friends have agreed that each one would receive $400 for the two days of hard work. Besides the expense of labour and material, the four friends had other expenses for the two days. For the sake of simplicity, two expenses were related to the production process, which was leasing a BBQ ($200) and a balloon pump ($50). The other two expenses were related to sales and administrative tasks, which were leasing a gazebo ($50) and getting a permit for having the stand outside the shopping centre ($250).

Required

Based only on information provided in Question 1, create an income statement for BBQ & Balloons (suggestion: use Exhibit 7-2 as a model)

Question 2

John and Paul spent most of their time preparing the barbecues or inflating balloons, whereas Ringo and George were busy with sales and administrative tasks. The table below has information regarding the four friends' activities over the weekend.

Table 1 - Activity

John

75%- Operating BBQ

10%- Inflating balloons

5%- Cashier

10%- Greeting customers

100%- Total

Paul

25%- Operating BBQ

75%- Inflating balloons

0%- Cashier

0%- Greeting Customers

100%- Total

Ringo

10%- Operating BBQ

30%- Inflating Balloons

50%- Cashier

10%- Greeting Customers

100%- Total

George

0%- Operating BBQ

20%- Inflating balloons

5%- Cashier

75%-Greeting Customers

100%- Total

Required

a) Considering four cost pool activities (operating the BBQ, inflating balloons, cashier, and greeting customers) create a table with the labour cost per person and total labour costs (suggestion: use Exhibit 7-6 as a model).

b) Calculate the activity rate for each of the labour cost pool activities (suggestion: use Exhibit 7-7 as a model) and identify which of the four cost pool activities is most expensive and why?

c) Create an activity-based costing product margin for the sales of barbecues and balloons (suggestion: use Exhibit 7-11 as a model). For the sake of simplicity, consider the manufacturing overhead and sales and administrative tasks as untraceable expenses and do not include them.