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

Answer (a):

Cost of preparing one batch of 100 pieces: $49

Workings are as follows:

For 100 pieces 10 bags of precut chicken each having 10 pieces will be required.

Cost of 10 bags of precut chicken (10 * $3 per bag)	$30
Wage expenses ( 2 hours * $ 8 per hour)	$16
Cost of putting fresh oil	$3
Total cost of preparing one batch of 100 pieces	$49

Answer (b):

If management projects that it will sell 300 pieces of fried chicken,

Total Batch cost = $147

Unit Cost = $0.49

Workings:

Batch cost of 3 batches of 100 each = 3 * $49 = $147

Unit Cost = $147 / 300 = $0.49

Answer (c): $147

Workings:

As it is a batch process, even for even for 250 pieces 3 batches of 100 pieces each have to be run.

As such total cost = $49 * 300 = $147

Answer (d): $4

Working:

One employee takes two hours to prepare one batch.

Existing wage cost per hour = $8

If Government raises minimum wage per hour to $10,

Increase in batch cost = ($10 - $8) * 2 = $4

Answer (e): $130

If management decided to reduce the number of pieces in a batch to 50, then 5 bags each having 10 pieces of precut chicken will be required.

It is assumed that the batch would take half as long to prepare i.e. it will take one employee one hour to prepare.

It is assumed that management wants to replace the oil after 50 pieces are cooked.

As such cost of per batch of 50 pieces will be:

Cost of 5 bags of precut chicken (5 * $3 per bag)	$15
Wage expenses ( 1 hour * $ 8 per hour)	$8
Cost of putting fresh oil	$3
Total cost of preparing one batch of 50 pieces	$26

Hence, cost of preparing 250 pieces (5 batches) = $26 * 5 =$130