Question

Problem 2-51 Manufacturing, Cost Classification, Product Costs and Selling and Administrative Costs, Income Statement Pops Drive-Thru Burger Heaven produces and sells quarter pound hamburgers. Each burger is wrapped and put in a "burger bag. which also includes a servi 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) Pops 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. OBJE ng of fries and a soft drink. The price A janitor ishired to clean the building early each morming Cleaning supplies are used by the jarn itor, 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 re- sponsible for hiring and firing. The following costs were incurred during December 1,800 Hamburger meat Buns, lettuce, pickles, and onions Frozen potato strips Wrappers, bags, and condiment 4,500 Rent Depreciation, cooking equipment 8o0 1,250 and fixtures Advertising 600 500 520 150 1,500 4,250 600 Janitor's wages 660 Janitorial supplies packages Other ingredients Part-time employees' wages John Peterson's salary 7250 Accounting fees Taxes 1,500 Pops accountant, Elena DeMarco, does the bookkeeping. handles payroll, and files all nec- essary taxes. She noted that there were no beginning or ending inventories of materials. To sim- plify 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 cach 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, S4,500. Direct Manufacturing Selling and Materials Labor OverheadAdministrative Cost Hamburger meat Totals $4.500 2. Prepare an income statement for the month of December 3. CONCEPTUAL CONNECTION Elena made some simplifyingassumptions. Were those rea- sonable? Suppose a good case could be made that the portion of the employees'time spent sell- ing the burger bags was really a part of sales. In that case, woukd it bebett divide their time between production and selling? Should John Peterson's time be divided between marketing and administrative duties? What difference (if any) would that make on the income statement?