Question

All the cost will not get doubled. The costs can be classified under two heads namely, Variable Cost & Fixed Cost. The fixed cost remains the same irrespective of the activity level whereas the variable cost keeps on changing due to the change in the activity level. Only the variable cost will be doubled or increased.
The costs which will get doubled are given as follows:
1 .......... Lettuce
2 .......... Tomato
3 .......... Chicken
4 .......... Potato
5 .......... Ice cream
6 .......... Frozen green beans
The following cost will be increased but not by 100%.
1 .......... Incidental Cost like salt, spices, butter.
2 .......... Olive oil & other cooking & dressing material
3 .......... Cost involved in presenting or serving
4 .......... Maintenance Cost of Kitchen
5 .......... Depreciation on assets used in kitchen
6 .......... Electricity Expense
7 .......... Storage & Handling Cost
8 .......... Water Cost
9 .......... Dish Cleaning Cost
10 ........... Paper Towels Cost
Assume that you invite one friend to dinner. Will the cost of preparing the dinner “double?” Indicate which costs included in your full cost will “double” and which will not. Explain why some costs “double” and some do not.
Note that this illustration of developing the full cost of a relative simple process (shopping for and preparing dinner) illustrates the types of the problems that arise and judgments that must be made in developing full cost for production in complex business situations, where many judgments must be made in determining the costs to allocate to production.
The “important” point is for you to understand the fixed and variable costs. Also, you should have determined a “total estimated” overhead—all costs of preparation that are not direct costs. This amount can be converted to a “cost per meal,” “cost per hour,” or some other “cost per” measure, depending on the level of activity used to determine thecost.


$1.99
Sales0
Views172
Comments0
  • CreatedAugust 05, 2013
  • Files Included
Post your question
5000