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. SalesLess: Cost of salesGross p

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.

SalesLess: Cost of salesGross profitLess: Operating Expenses:

Wages of counter staffPaper material costs (e.g. Napkins)Utilities (allocated)Depreciation of counter equipment and furniture Depreciation of building (allocated)Deli managerial salaries (allocated)Total

Loss on ice cream counter

Required:

$$ 67,500

30,000 37,500

42,600 (5,100)

incorrectly

18,000 6,000 4,350 3,750 6,000 4,500

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