Stacy Kuh, the Manager of the Ice Cream Igloo, Has

question 156

Essay

Stacy Kuh, the manager of the Ice Cream Igloo, has been told that to earn a reasonable profit she should price her products at 200% of the cost of ingredients. Ms. Kuh has gathered the following data on the cost of ingredients used to make a banana split:
-The distributor charges $12 for a dozen bananas; each banana split uses one banana.
-Ice cream costs $3.20 per litre; each banana split uses two scoops of ice cream.
-One litre of ice cream equals eight scoops of ice cream.
-Stacy makes her own fruit toppings at a cost of $0.25 per tablespoon; each banana split uses six tablespoons of fruit toppings.
-Each banana split uses three tablespoons of premium chocolate sauce, which costs $0.25 per tablespoon.
-The cost of other miscellaneous ingredients, such as whipped cream and nuts, totals $0.05 per banana split.
a)Calculate the cost of a banana split.
b)List two factors that could cause these estimated costs to be inaccurate.

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Definitions:

Machine Hour

A measure of production time, representing the time a machine is operated to perform work.

High-low Method

A technique used in managerial accounting to estimate fixed and variable costs based on the highest and lowest levels of activity.

Variable Cost

Costs that change in proportion to the activity or business volume, such as materials and labor directly involved in production.

Variable Cost Per Unit

The cost that varies with each unit of product produced, including costs like materials and labor that increase with production volume.