201-SELF STUDY PROB-WEEK 9-S'12

201-SELF STUDY PROB-WEEK 9-S'12 - $45,000 Less Cost of food...

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!"# % &'() &*+,- ./01('2& % &0(+*304& 5 6''7 8 #9%:: .;<=>[email protected] #9%:: ,;<AABCD E A;<FGHI >BC? EXERCISE 14-33 (15 MINUTES) The owner’s analysis incorrectly includes the following allocated costs that will be incurred regardless of whether the ice cream counter is operated: Utilities ....................................................................................................................... $2,900 Depreciation of building .......................................................................................... 4,000 Deli manager’s salary ............................................................................................... 3,000 Total ........................................................................................................................... $9,900 It is possible that closing the ice cream counter might save a portion of the utility cost, but that is doubtful. A better analysis follows: Sales ....................................................................................................
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Unformatted text preview: $45,000 Less: Cost of food . ............................................................................. 20,000 Gross profit . ........................................................................................ 25,000 Less: Operating expenses Wages of counter personnel . .............................................. $12,000 Paper products . ..................................................................... 4,000 Depreciation of counter equipment and furnishings* . ...... 2,500 Total . ...................................................................................... 18,500 Profit on ice cream counter $ 6,500 *Depreciation on the counter equipment and furnishings is included because it is traceable to the ice cream operation and is an expense in the determination of income. If a cash-flow analysis is desired, this noncash expense should be excluded....
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