[julesmc]

Joe runs a store and diner. He started to sell bags of peanuts, which he keeps in a heated rack on his front counter. He thought that he was making a profit because the bags cost him 6 cents a bag and he sell them for 10 cents.
However an accountant tells him that he is actually losing money on each bag that he sells because he has to allocate expenses of the store to every bag of peanuts that he sells. The costs that the accountant says need to be allocated to each bag of peanuts are : rent, light, heat, equipment, depreciation, decorating, salaries for waitresses, salaries for the cook, cleaning the store, providing free drinks to the police, and what the space that the peanut rack takes up is worth. All of these costs are called general overhead costs.
The question is to decide who is right, Joe or the accountant.

I know that indirect costs do have to be allocated out to each unit that the company produces. However, I'm not sure whether costs like the cooks salary and other costs would be properly allocated to the bags of peanuts.

I've been working on this problem all weekend, and it's due on Monday (the 18th)
Thanks!

[CaptainForest]

The accountant is right, to a degree. The cook's salary should NOT be allocated to the cost of the peanuts, but the cost of the shelving space should be. So some of those indirect costs should be attributed, while others shouldn't.