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Accounting Chili

In: Business and Management

Submitted By kelsingh
Words 493
Pages 2
ACCT 222 ( Kelvin )
WENDY’S CHILLI 1. The cost of ground beef is a joint cost. The ground beef is made into beef patties which are used first for hamburger. However, the “well-done” beef patties that cannot be served as “hot ‘n juicy” old-fashioned hamburgers will be used to make chili. At this point, the ground beef patties used for hamburgers and the ground beef patties used to chili split off and become separately identifiable. 2. Hamburgers account for 55% of Wendy’s total sale, while chili only composes for 5%. Therefore, chili is a by-product of hamburger.
The meat that goes into making chili is a by-product of hamburgers. The over-cooked meat is used as input in the process of making chili instead of being thrown away. It enables Wendy to avoid incurring extra costs. 3. Option 1: The cost of chili does not vary with the seasons. During the month of October through March, 60% of annual chili sale occurred. It happened approximately 10% of the time; it became necessary to cook meat specifically for use in making chili. However, the price of ground beef does not change. Even though the total cost of making chili increases, the unit cost remains unchanged. There is no need to increase the price as well.
Option 2: : The cost of chili does vary with the seasons. During the month of October through March, 60% of annual chili sale occurred. It happened approximately 10% of the time; it became necessary to cook meat specifically for use in making chili, which increases the cost of making chili. The total cost of making each 8-ounce serving of chili is $1.13 when ground beef is used specifically for chili. Wendy’s should increase the price, which currently is $0.99, from October to March in order to make up for the extra cost incurred. 4. a) 5. Ground beef is one of the direct materials in making chili. The increase in ground beef price leads

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