Question

Unit- and Batch-Level Cost Drivers
KC, a fast-food restaurant, serves fried chicken, fried fish, and French fries. The managers have estimated the costs of a batch of fried chicken for KC's all-you-can-eat Friday Fried Fiesta. Each batch must be 100 pieces. The chicken is precut by the chain headquarters and sent to the stores in 10-piece bags. Each bag costs $3. Preparing a batch of 100 pieces of chicken with KC's special coating takes one employee two hours. The current wage rate is $8 per hour. Another cost driver is the cost of putting fresh oil into the fryers. New oil, costing $3, is used for each batch.

Round answers to two decimal places, when applicable.

(a) Determine the cost of preparing one batch of 100 pieces.
$Answer

(b) If management projects that it will sell 300 pieces of fried chicken, determine the total batch and unit costs.
Batch cost $Answer

Unit cost $Answer

(c) If management estimates the sales to be 250 pieces, determine the total costs.
$Answer

(d) How much will the batch costs increase if the government raises the minimum wage to $10 per hour?
$Answer

(e) If management decided to reduce the number of pieces in a batch to 50, determine the cost of preparing 250 pieces. Assume that the batch would take half as long to prepare, and management wants to replace the oil after 50 pieces are cooked.
$Answer

Answer 1

a. Calculation of cost of preparing one Batch

1 batch consists of 100 chicken pieces

no of bags required for 100 pieces = 100pieces/10 pieces per bags= 10 bags

cost per bag = $3

total precut chicken cost = $3 * 10 bags = $30 per batch

Labour cost = 2 hours per batch * $8 per hours = $16 per batch

oil cost    = $ 3 per batch

Total cost per 1 batch = $49 per batch

b. we have cost per 1 batch of 100 peices = $49 per batch

required 300 peices

no of batches = 300 peices / 100 peices per batch = 3 batches

Total cost for 3 batches = $49 per batch * 3 =$ 147

cost per unit = total cost / no of units = $147/300pieces= $0.49 per piece

c. given sales = 250 pieces

even though we require 250 pieces , but we run in batches of 100

so total batches require is 3 batches and total cost per 3 batches is $147 ( as calculated above)

Therefore total cost will remain $ 147 as 3 batches are required.

d. Wages are increased to $10

total increase in wages = 10-8 = $2

Increase in batch cost = $ 2 increase per hour * 2 hours = $4 increase

total cost per batch (as calculated in A above) = $49

Increase in cost of labour = $4

New cost per batch including new labour cost = $53

e. batch size = 50 pieces

no of pieces required = 250 pieces

no of batches = 250 pieces/50 per batch = 5 batches

Total cost for 3 batches

no of precut chicken bags = 250 peices /10 per bag= 25 bags

total cost of pre cut chicken = 25 bags *$3 =$75

labour cost = $ 8 per hour * 1 hour = $8 per batch * 5 batches = 40

total oil cost = $3 per batch* 5 batches = $ 15

Total cost for 5 batches = 75+40+15=$130 for 250 peices