1.      Manufacturing, Cost Classification, Cost Tracing, and the Income Statement

Pop’s Burger Heaven produces and sells quarter-pound hamburgers. Each burger sells for $1.50. During December, Pop’s sold 10,000 burgers (the average amount sold each month). The restaurant employs cooks, servers, and one supervisor (the owner, John Peterson). All cooks and servers are part-time employees. 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 on a weekly basis. The building is leased from a local real estate company. The building has no seating capabilities. All orders are filled on a drive-through basis.

The supervisor schedules work, opens the building, counts the cash, adver- tises, and is responsible for hiring and firing. The following costs were incurred during December:

Hamburger meat . . . . . . . . $1,600        Utilities . . . . . . . . . . . . . . . . . . . . . $500 Lettuce . . . . . . . . . . . . . . . . .                                              300          Depreciation:

Tomatoes . . . . . . . . . . . . . . .                250             Cooking equipment......................... 200

Buns . . . . . . . . . . . . . . . . . . .                    300             Cash register................................... 50

Other ingredients . . . . . . . .                   20         Advertising........................................ 100

Cooks’ wages . . . . . . . . . . .             2,550          Janitor’s wages.................................. 120

Servers’ wages . . . . . . . . . . .               2,032          Janitorial supplies............................... 50

Supervisor’s salary . . . . . . . 2,000                     Rent............................................... 800

 

Required

1.    Classify each cost for Pop’s December operations into one of the following categories: direct materials, direct labor, overhead, or selling and administra- tive expenses.

2.    Prepare an absorption-costing income statement for the month of December.

3.    Suppose Pop’s also produces a grilled chicken sandwich and you want to determine the cost of producing both hamburgers and grilled chicken sand- wiches. How would you assign the shared cost of depreciation for the cook- ing equipment to each product? Is this direct tracing, driver tracing, or alloca- tion? Explain.