Rather senior management must be intimately involved

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Unformatted text preview: istration, student administration and services, and library.2 But these are the exceptions. In most merchandising and service organizations, there is no requirement to calculate full costs. Rather, full costs will be calculated only if senior management believes the information will assist them in decision making. Because of this, some service organizations do not undertake a full-cost accounting effort, and some manufacturing and merchandising organizations do no more than satisfy the requirements of GAAP. For example, restaurants do not calculate the full cost of a meal. Instead, the chef computes the cost of the ingredients for each item on the menu, and the item’s price is set at a certain markup over the ingredient cost. The difference between the price and the ingredient cost must cover the costs of kitchen labor, bussers, expediters, the wait staff, management, and all other operating expenses. As indicated above, management then typically computes each expense item (such as kitchen labor) as a percentage of total revenue and uses industry standards to see if it is on target...
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