Cost Accounting in Plaestine

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MASTER OF BUSINESS ADMINISTRATION PROGRAM

Cost Accounting, BUSA 631

Professor: Iskander Kuttab

CASE 1 solution

Qais Jamal Sbaih, ID:  1145338                                                                                                         14 Mar 2015

Case analyses of giving:

• Steakhouse has 970 Restaurants.
• Each restaurant is cleaned regularly after closing (so each restaurant is cleaned each day and 30 days a month).
• Special treatment (or irregular cleaning) is totaled 5 to 20 times/ month all per restaurant.
• So the TOTAL number of times restaurant is cleaned (regular cleaning and special treatment) is 35-50 ( 30+5 – 30+20).
• Labor and supplies the major costs for cleaning a restaurant.(for both, the square feet is the cost driver).
• Because labors are being paid regularly regardless of number of restaurant is cleaned so labor is Fixed Cost.  But supplies are varied so its Variable Cost.
• Regular and special treatment supplies cost/ square foot is the same
• One of the restaurants Orlando has 5,000 sq/feet.
• Orlando was Cleaned 35 times in October.
• Its Labor Cost in Oct was $30,000 and Cleaning Supplies costs was $10,000
• Because the Next months after October was much busier:

. They expect to clean Orlando in November 45 times

. And clean it in December for 50 times.

Required 1.

Since the labor wages are fixed $10,000 it will not be changed if the number of times cleaning is changed, but since the cost of supplies is variable, and is giving only for October which is equal to $12,500, then we need to know how much cost for each time the number of cleaning times is changed. Hence, this questions has confused me by mentioned that the cost driver is square/feet, but if I want to follow the 5 steps of  O.H  allocation then cost driver must be NUMER OF TIMES square feet is cleaned out!

Supplies costs are expected to increase by 10,500/35 = $300 supplies/one time cleaned

And the predicted total cost for Nov and December would be as follows (extraction from the table below):

For November: total cost = Fixed cost(labor) + Variabe Cost (Supplies)

                                              = $ 30,000 + 13,500

                                              = $ 43,500

Or total Cost for November = 0.1933 * 24*5 = $ 43,500

 The same for December: total cost = Fixed cost(labor) + Variabe Cost (Supplies)

                                             = $ 30,000 + 15,000

                                             =  $45,000