Peanuts and Cost Accounting
A problem faced by a Restaurateur (Joe) as revealed by his Accountant-Efficiency
Expert (Eff. Ex.)
EFF. EX. Joe, you said you put in these peanuts because some people ask for them,
but do you realize what this rack of peanuts is costing you?
JOE It aint gonna cost. Sgonna be a profit. Sure, I hadda pay $25 for a fancy rack to
holda bags, but the peanuts cost 6 cents and I sell em for 10 cents. Figger I sell 50
bags a week to start. Itll take 12 weeks to cover the cost of the rack. After that, I gotta
clear profit of 4 cents a bag. The more I sell, the more I make.
EFF. EX. That is an antiquated and completely unrealistic approach, Joe.
Fortunately, modern accounting procedures permit a more accurate picture which
reveals the complexities involved.
JOEHuh?
EFF. EX. To be precise, those peanuts must be integrated into your entire operation
and be allocated their appropriate share of business overhead. They must share a
proportionate part of your expenditures for rent, heat, light, equipment depreciation,
decorating, salaries for your waitresses, cook,…
JOE The cook? Whatsa he gotta do wita peanuts? He don even know I gotem!
EFF. EX. Look, Joe, the cook is in the kitchen, the kitchen prepares the food, the food
is what brings people in here, and the people ask to buy peanuts. Thats why you must
charge a portion of the cooks wages, as well as a part of your own salary to peanut
sales. This sheet contains a carefully calculated cost analysis which indicates the
peanut operation should pay exactly $1,278 per year toward these general overhead
costs.
JOE The peanuts? $1,278 a year for overhead? The nuts?
EFF. EX. Its really a little more than that. You also spend money each week to have
the windows washed, to have the place swept out in the mornings, and to keep soap in
the washroom. That raises the total to $1,313 per year.
JOE (Thoughtfully) But the peanut salesman said Id make money — putem on the end
of the counter, he said — and get 4 cents a bag profit.
EFF. EX. (With a sniff) Hes not an accountant. Do you actually know what the
portion of the counter occupied by the peanut rack is worth to you?
JOE Aint worth nothing – no stool there – just a dead spot at the end.
EFF. EX. The modern cost picture permits no dead spots. Your counter contains 60
