Rent $ 1,800 Hamburger meat Buns, lettuce, pickles, and onions Frozen potato strips Wrappers, bags, and condiment packages Other ingredients Part-time employees' wages John Peterson's salary $ 4,500 Depreciation, cooking cquipment and fixturcs 800 600 1,250 Advertising Janitor's wages Janitorial supplics Accounting fees 500 600 520 150 660 1,500 7,250 Taxes 4,250 3,000 Utilities 1,500 Manufacturing Overhead Selling and Administrative Direct Direct Cost Materials Labor Hamburger meat $4,500 Totals

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Manufacturing, Cost Classification, Product Costs and Selling and Administrative Costs, Income Statement 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:

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 Pop’s December operations using the table format given below. Be sure to total the amounts in each column.
Example: Hamburger meat, $4,500.
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 Peterson’s time be divided between marketing and administrative duties? What difference (if any) would that make on the income statement?

Rent
$ 1,800
Hamburger meat
Buns, lettuce, pickles, and onions
Frozen potato strips
Wrappers, bags, and condiment
packages
Other ingredients
Part-time employees' wages
John Peterson's salary
$ 4,500
Depreciation, cooking cquipment
and fixturcs
800
600
1,250
Advertising
Janitor's wages
Janitorial supplics
Accounting fees
500
600
520
150
660
1,500
7,250
Taxes
4,250
3,000
Utilities
1,500
Transcribed Image Text:Rent $ 1,800 Hamburger meat Buns, lettuce, pickles, and onions Frozen potato strips Wrappers, bags, and condiment packages Other ingredients Part-time employees' wages John Peterson's salary $ 4,500 Depreciation, cooking cquipment and fixturcs 800 600 1,250 Advertising Janitor's wages Janitorial supplics Accounting fees 500 600 520 150 660 1,500 7,250 Taxes 4,250 3,000 Utilities 1,500
Manufacturing
Overhead
Selling and
Administrative
Direct
Direct
Cost
Materials
Labor
Hamburger meat
$4,500
Totals
Transcribed Image Text:Manufacturing Overhead Selling and Administrative Direct Direct Cost Materials Labor Hamburger meat $4,500 Totals
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