Star Wars Cafe sells cocktails and coffee. It has a limited assortment of drinks. The table below shows prices, variable costs, and sales numbers for each of the four drinks that Star Wars Cafe sells. Star Wars Cafe employs two managers: Asaji is responsible for the bar, where she sells cocktails from 9 pm to midnight. Baltar is responsible for the cafe area, where she sells coffee from 7 am to 9 pm. Both managers are rewarded on the basis of the profit they generate. Star Wars Cafe allocates overhead costs of $3,870 to each variety of drink on the basis of total revenue dollars: one overhead rate applies to each dollar of revenue generated. Asaji wants to stop selling the Master Yoda Cocktail because it is a loss-making drink.

(a) Determine the current overhead allocation rate (properly rounded).

(b) Assuming all other sales volumes remain the same, what outcome will the decision to stop selling the Master Yoda Cocktail have on the profifitability of Bulter’ s cafe and Asaji’ s bar? Show workings.

(c) Star Wars Cafe could change the way it allocates overhead in a way that it does not distort or affect decision making. It can do so by ... ?
 

For December 2015 Revenues Direct, variable cost Sales # Master Yoda Cocktail $ $ Obi Wan Kenobi Cocktail 16.00 $ 12.00 $ 225 The Dark Side Latte 12.00 $ 6.00 300 The C3PO Mocca $ 4.00 $ 1.00 $ 525 6.00 4.00 600