Reference no: EM131872521

Problem: Cost of a Dinner

Describe the full cost of preparing in your own kitchen a dinner for one consisting of salad (lettuce, tomatoes, and dressing), baked chicken, baked potatoes, green beans, and ice cream. Assume that on one shopping trip you purchased all of the components of this dinner except the ice cream, which you had purchased on a previous shopping trip. The costs of the components were:

Lettuce, one head (your serving is ¼ of the head) - $1.00

Tomato (your serving is ¼ of the tomato) - $0.80

Chicken, one piece (your serving is the full piece) - $1.25

Potato, one (your serving is one potato) - $0.25

Ice cream, one quart (your serving is ¼ of the quart) - $2.50

Dressing, one bottle (your serving is one-tenth of the bottle) - $2.50

Frozen green beans, one bag (your serving is ¼ of the bag) - $2.20

When calculating full cost, remember that the costs of incidental items (such as salt, butter, and spices) must be considered. Describe such costs and make some reasonable estimate of the costs.

1. After considering and describing the full cost of preparing your dinner, answer the following with respect to the full costs you have calculated or described:

a. Will the full cost change if you boil, instead of bake your potato?

b. Will the full cost change if you microwave (as opposed to cooking on the range top) your green beans?

c. Did your description of full cost include the cost of storing the ice cream?

d. Did your full cost include the cost of water to wash the vegetables and chicken before preparation and the cost of paper towels to dry the vegetables and chicken?

e. Did your full cost include the cost of writing the check (or using your credit card) at the supermarket?

f. Did your full cost include the cost of two trips to the supermarket (gas, depreciation on your car, depreciation on your tires)?

g. What are the assets employed in preparing your dinner? Did your full cost include depreciation on these assets? If you do not own the assets, did your full cost include a portion of the monthly rental of the assets?

h. Did your full cost include an amount necessary to return your kitchen to its original state (i.e., a cost to clean/maintain the kitchen)?

2. Assume that you invite one friend to dinner. Will the cost of preparing the dinner "double?" Indicate which costs included in your full cost will "double" and which will not. Explain why some costs "double" and some do not.

Note that this illustration of developing the full cost of a relative simple process (shopping for and preparing dinner) illustrates the types of the problems that arise and judgments that must be made in developing full cost for production in complex business situations, where many judgments must be made in determining the costs to allocate to production.

The "important" point is for you to understand the fixed and variable costs. Also, you should have determined a "total estimated" overhead-all costs of preparation that are not direct costs. This amount can be converted to a "cost per meal," "cost per hour," or some other "cost per" measure, depending on the level of activity used to determine the cost.