Pop's Drive-Thru Burger Heaven produces and sells quarter-pound 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 $3.50. During December, 10,000 burger bags were sold. The restaurant employs college students part-time to cook and fill orders. There is one supervisor (the owner, John Peterson). 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 from a local real estate company; it has no seating capacity. All orders are filled on a drive-thru basis.

The supervisor schedules work, opens the building, counts the cash, advertises, and is responsible for hiring and firing. The following costs were incurred during December:

Hamburger meat	$4,500
Buns, lettuce, pickles, and onions	800
Frozen potato strips	1,250
Wrappers, bags, and condiment packages	600
Other ingredients	660
Part-time employees wages	7,250
John Petersons salary	3,000
Utilities	1,500
Rent	1,800
Depreciation, cooking equipment and fixtures	600
Advertising	500
Janitors wages	520
Janitorial supplies	150
Accounting fees	1,500
Taxes	4,250

Pop's accountant, Elena DeMarco, does the bookkeeping, handles payroll, and files all necessary taxes. She noted that there were no beginning or ending inventories of materials. To simplify accounting for costs, Elena assumed that all part-time employees are production employees and that John Peterson's salary is selling and administrative expense. She further assumed that all rent and depreciation expense on the building and fixtures are part of product cost. Finally, she decided to put all taxes into one category, taxes, and to treat them as administrative expense.

Required:

1.

Classify each of the costs for Pops December operations using the table provided. If an amount is zero, enter "0". Be sure to total the amounts in each column.

2.

Prepare an income statement for the month of December.

3.

CONCEPTUAL CONNECTION: 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 really a part of sales. In that case, would it be better to divide their time between production and selling? Should John Petersons time be divided between marketing and administrative duties? What difference (if any) would that make on the income statement?

Refer to the list below for the exact wording of a label or an amount description within your income statement.

Labels

Add

Less

Amount Descriptions

Cost of goods sold

Direct labor

Direct materials

Gross margin

Manufacturing overhead

Net income

Net loss

Sales

Selling and administrative expense

1. Classify each of the costs for Pops December operations using the table provided. Hamburger meat ($4,500) is classified as an example. If an amount is zero, enter "0". Be sure to total the amounts in each column.

Pop's Drive-Thru Burger Heaven

1	Cost	Direct Materials	Direct Labor	Manufacturing Overhead	Selling and Administrative
2	Hamburger meat	$4,500.00	$0.00	$0.00	$0.00
3	Buns, lettuce, pickles, and onions
4	Frozen potato strips
5	Wrappers, bags, and condiment packages
6	Other ingredients
7	Part-time employees wages
8	John Petersons salary
9	Utilities
10	Rent
11	Depreciation, cooking equipment and fixtures
12	Advertising
13	Janitors wages
14	Janitorial supplies
15	Accounting fees
16	Taxes
17	Totals

2. Prepare an income statement for the month of December. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your income statement. No costs are split.

Pops Drive-Thru Burger Heaven

Income Statement

For the Month of December

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