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Tiptop Street Deli's owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analysis for the
Tiptop Street Deli's owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analysis for the year Just ended. $ $ 67,500 30.000 37,500 Sales Less: Cost of sales Gross profit Less: Operating Expenses: Wages of counter staff Paper material costs (e.g. Napkins) Utilities (allocated) Depreciation of counter equipment and furniture Depreciation of building (allocated) Deli managerial salaries (allocated) Total Loss on ice cream counter 18,000 6,000 4,350 3,750 6,000 4.500 42,600 (5,100) Required: 1. In the above owner's analysis, what costs (amounts) are incorrectly allocated? 2. Show a better analysis and indicate the net financial effect (profit or loss) of dropping the ice cream counter. Question 2 (Points 10) Give two examples of sunk costs, and explain why they are irrelevant in decision making
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