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Essay / Research Paper Abstract
This 4 page paper answers three questions concerning how costs are allocated in a case study, where costs are not allocated in the usual way, the relevant and irrelevant costs with a new decision and the use of activity based costing. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEcostcase1.rtf
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Unformatted sample text from the term paper:
variable cost for burgers of 0.60 and a revenue of 0.99 then there is a contribution of 0.39. This contrition goes to pay the fixed costs and then profit.
The way in which the fixed costs are allocated can vary greatly. Where there is a high level of labour the costs may be divided by the man hours
and then allocated according the number of man hours. The inputs needed for this were the total level of man hours in the factory and the number of man hours
for each item and the level of sales for each item. This is fairly straight forward. With the McDonalds case study the way in which goods are made the
same person can make two different products at the same time. So, instead of man hours we have assumed the allocation was undertaken by taking the level of fixed costs
and apportioning them to each item according to the sales mix, meaning the percentage of sales that each good has in the total revenue. As the burger sales make up
20% of the fixed costs the allocation is 20% of the fixed costs to this using the product as a profit centre. However, it was assumed that the burgers
are the core product and there is to be no allocation, with the burgers only carrying the cost, then we would see the following, with the burgers paying for the
entire 100% overhead for the restaurant. Revenue (a) 0.99 Variable cost (b) 0.6 Contribution (c) (a-b) 0.39 Fixed costs (d) 2,000 Break even (d/c) 5,128 This would dramatically increase
the break even point, and possibly give the appearance that this was making a loss if the break even point was not reached. For all the other products the contrition
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