drop cost

ACT310: Managerial Accounting Assignment Dr. Abdulhadi Ramadan and Dr. Susith Fernando Spring 2020

Online Weekly Assessment 4 (INDIVIDUAL) (15%) Semester : Spring 2020 Year : 2019/2020

Course Title : Managerial Accounting

Course Code : ACT310 Section :

Instructor : Dr. Abdulhadi Ramadan and Dr. Susith Fernando

Instructions Submit your assessment answers online through Moodle (with a cover page that incudes your name, ID, and the Section.)

Due Date Thursday 4th June 2020 at 12:59 pm

To be completed by the student

Students Name : Student ID:

Grading Scheme

Question Earned Points Max. Points Question Earned Points Max. Points

1 90

2 10

Total Earned Points Total Available Points Instructor Signature

100

ACT310: Managerial Accounting Assignment Dr. Abdulhadi Ramadan and Dr. Susith Fernando Spring 2020 2 | P a g e

Question 1 (Points 90)

Tiptop Street Deli's owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analysis for the year Just ended.

$ $

Sales 67,500

Less: Cost of sales 30,000

Gross profit 37,500

Less: Operating Expenses:

Wages of counter staff 18,000

Paper material costs (e.g. Napkins) 6,000

Utilities (allocated) 4,350

Depreciation of counter equipment and furniture 3,750

Depreciation of building (allocated) 6,000

Deli managerial salaries (allocated) 4,500

Total 42,600

Loss on ice cream counter (5,100)

Required:

1. In the above owner’s analysis, what costs (amounts) are incorrectly allocated?

2. Show a better analysis and indicate the net financial effect (profit or loss) of dropping the ice cream counter.

Question 2 (Points 10)

Give two examples of sunk costs, and explain why they are irrelevant in decision making.