Management Accounting Assignment Fall 2020

Management Accounting Assignment Fall 2020

Problem 1

Chef Gary has been a pioneer of farm-to-table cooking. In fact, he used to be a farmer

and decided that he wanted to use everything grown and raised on his farm to make the

freshest fine cuisine possible. Sure, some of the spices and ingredients have to be

sourced from elsewhere, but 90% of what is in Chef Gary’s food is direct from his farm.

He spent $2 million in savings and converted some of his many acres of farmland into a

restaurant. He is the head chef and has a staff of about 10 people working for him. He

pays his workers cash, but he does not pay himself a salary; the profit of the restaurant

is what he claims at the end of the year as his income.

• What are some of the accounting costs for Gary’s restaurant? Try to think of at least

five.

• What are some of the opportunity costs for Gary’s restaurant? Hint: there are three

big ones.

• Suppose a global epidemic of avian flu causes a massive reduction in the supply of chickens, resulting in a dramatic increase in the market price of the chickens at Gary’s farm that he uses to make his famous Chicken Cordon Bleu. What happens to Gary’s accounting costs and opportunity costs? As a wise manager of his restaurant, what should Gary do in response to this?

Problem 2

Say that you are a manager with the Transportation Security Administration (TSA). The table shows fictional estimates of the marginal benefit and marginal cost of additional TSA security lines at Mahlon Sweet Field, the airport in Eugene, Oregon.

1. What is the surplus of benefit over cost for the second security line? For the third security line? If your goal is to maximize the total surplus, would you want to operate the third security line? Explain your answer.
2. What is the optimal number of TSA security lines? Relate this answer to your answer to part a.

Management Accounting Assignment Fall 2020

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