Question 6.3 (Total: 23 marks)

Dads Diner is a fast-food restaurant that sells burgers and hot dogs in a 1960s environment. The fixed operating costs of the company are $5,000 per month. The controlling shareholder, interested in product profitability and pricing, wants all costs allocated to the burgers and hot dogs. The following information is provided for the operations of the company:

Burgers Hot Dogs

Sales for March 4,000 2,400

Sales for April 6,400 2,400

Required

1. What amount of fixed operating costs is assigned to the burgers and hot dogs when actual sales are used as the allocation base for March? For April?
2. Hot dog sales for March and April remained constant. Did the amount of fixed operating costs allocated to hot dogs also remain constant for March and April? Explain why or why not. Comment on any other observations.