Chapter Basic Managerial Accounting Concepts PROBLEMS Product Costs, OBJECTIVE ee Problem 2.22 Manufacturing, Cost Classification, Income Statement, and Selling and Administrative Costs Pop's Drive-Thru Burger Haven produces and sells hamburgers Each burger is wrapped and put in a "burger bag" which also includes a serving of fries and a soft drink. The price for the burger bag is S3.50. During December, 10,000 burger bags were sold. The restaurant employs students part-time to cook and fill orders. There is one supervisor, the owner, Andrew "Pop" Gallant Pop's maintains a pool of part-time employees so that the number of employees scheduled can be adjusted to the changes in demand. Demand varies on a weekly as well as a monthly basis A janitor is hired to clean the building early each morning. Cleaning supplies are used by the janitor, as well as the staff, to wipe counters, wash cooking equipment, and so on. The building is leased trom a local real estate company; it has no seating capacity. All orders are filled on a drive-through basis The supervisor schedules work, opens the building, counts the cash, advertises, and is respon- sible for hiring and firing. The following costs were incurred during December S4,500 Rent Hamburger meat Buns, lettuce, pickles, and onions Frozen potato strips wrappers, bags, and condiment packages Other ingredients Part-time employees' wages Andrew Gallant's salary Utilities 600 800 /Depreciation, cooking equipment 1,250 and fixtures 500 520 150 1,300 4,250 600 Advertising 660 Janitor's wages 7.250Janitorial supplies 3,000 VAccounting fees 1500 Taxes Pop's accountant, Elena De Marco, does the bookkeeping, handles payroll, and files all necessary taxes. She noted that there were no beginning or ending inventories of materials. To simplify ac- counting for costs, Elena assumed that all part-time employees are production employees and that Andrew Gallant's salary is a selling and administrative expense. She further assumed that all rent and depreciation expenses are part of product cost. Finally, she decided to put all taxes into one category, taxes, and to treat them as an administrative expense Required . Classify each of the costs for Pop's December operations using the table format given below. Be sure to total the amounts in each column. Example: Hamburger meat, $4,500. Direct Materials (S) Direct Labour (S) Manufacturing Overhead (S) Selling and Administrative Expense (S) Cost 4,500 Hamburger meat Total Prepare an income statement for the month of December Elena made some simplifying assumptions. Were those reasonable? Suppose a good case could be made that the portion of the employees' time spent selling the burger bags was Check figure really a part of sales. In that case, would it be better to divide their time between production 1. Total dire and selling? Should Andrew Gallant's time be divided between production, and selling and administrative duties? What difference (if any) would that make on the income statement? $7,810 2. Net inco
