Cost Accounting
Peanuts and Cost Accounting
A problem faced by a Restaurateur (Joe) as revealed by his Accountant-Efficiency Expert (Eff. Ex.)
EFF. EX. Joe, you said you put in these peanuts because some people ask for them, but do you realize what this rack of peanuts is costing you?
JOE It ain 't gonna cost. 'Sgonna be a profit. Sure, I hadda pay $25 for a fancy rack to holda bags, but the peanuts cost 6 cents and I sell 'em for 10 cents. Figger I sell 50 bags a week to start. It 'll take 12 ½ weeks to cover the cost of the rack. After that, I gotta clear profit of 4 cents a bag. The more I sell, the more I make.
EFF. EX. That is an antiquated and completely unrealistic approach, Joe. Fortunately, modern accounting procedures permit a more accurate picture which reveals the complexities involved.
JOE Huh?
EFF. EX. To be precise, those peanuts must be integrated into your entire operation and be allocated their appropriate share of business overhead. They must share a proportionate part of your expenditures for rent, heat, light, equipment depreciation, decorating, salaries for your waitresses, cook,...
JOE The cook? What 'sa he gotta do wit 'a peanuts? He don ' even know I got 'em!
EFF. EX. Look, Joe, the cook is in the kitchen, the kitchen prepares the food, the food is what brings people in here, and the people ask to buy peanuts. That 's why you must charge a portion of the cook 's wages, as well as a part of your own salary to peanut sales. This sheet contains a carefully calculated cost analysis which indicates the peanut operation should pay exactly $1,278 per year toward these general overhead costs.
JOE The peanuts? $1,278 a year for overhead? The nuts?
EFF. EX. It 's really a little more than that. You also spend money each week to have the windows washed, to have the place swept out in the mornings, and to keep soap in the washroom. That raises the total to $1,313 per year.
JOE (Thoughtfully) But the peanut salesman said I 'd make money
A problem faced by a Restaurateur (Joe) as revealed by his Accountant-Efficiency Expert (Eff. Ex.)
EFF. EX. Joe, you said you put in these peanuts because some people ask for them, but do you realize what this rack of peanuts is costing you?
JOE It ain 't gonna cost. 'Sgonna be a profit. Sure, I hadda pay $25 for a fancy rack to holda bags, but the peanuts cost 6 cents and I sell 'em for 10 cents. Figger I sell 50 bags a week to start. It 'll take 12 ½ weeks to cover the cost of the rack. After that, I gotta clear profit of 4 cents a bag. The more I sell, the more I make.
EFF. EX. That is an antiquated and completely unrealistic approach, Joe. Fortunately, modern accounting procedures permit a more accurate picture which reveals the complexities involved.
JOE Huh?
EFF. EX. To be precise, those peanuts must be integrated into your entire operation and be allocated their appropriate share of business overhead. They must share a proportionate part of your expenditures for rent, heat, light, equipment depreciation, decorating, salaries for your waitresses, cook,...
JOE The cook? What 'sa he gotta do wit 'a peanuts? He don ' even know I got 'em!
EFF. EX. Look, Joe, the cook is in the kitchen, the kitchen prepares the food, the food is what brings people in here, and the people ask to buy peanuts. That 's why you must charge a portion of the cook 's wages, as well as a part of your own salary to peanut sales. This sheet contains a carefully calculated cost analysis which indicates the peanut operation should pay exactly $1,278 per year toward these general overhead costs.
JOE The peanuts? $1,278 a year for overhead? The nuts?
EFF. EX. It 's really a little more than that. You also spend money each week to have the windows washed, to have the place swept out in the mornings, and to keep soap in the washroom. That raises the total to $1,313 per year.
JOE (Thoughtfully) But the peanut salesman said I 'd make money