15 Calculating and Interpreting Activity-Based Costing Data [LO3, L04] ide is a

Question

15 Calculating and Interpreting Activity-Based Costing Data [LO3, L04] ide is a popular restaurant located on Lake Washington in Seattle. The owner of the has been trying to better understand costs at the restaurant and has hired a student intern auranttivity-based costing study. The intern, in consultation with the owner, identi conduior activities and then completed the first-stage allocations of costs to the activic major ols. The results appear below. pert Activity Cost Pool Activity Measure Total Cost $138,000 S24,000 Total Activity party of diners.... Number of parties served Number of diners served Number of drinks ordered 6,000 parties 15,000 diners 10,000 drinks Serving drinks (???????0inMsusu 19, ve costs include all of the costs of the restaurant except for organization-sustaining costs rent, property taxes, and top-management salaries h as ??? de onab ?? eYA a4c 9"w . up of diners who ask to sit at the same table are counted as a party. Some costs, suc A group h as ts of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dis hes, depend on the number of diners served asioiM Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240.000 and that 15,000 diners had been served. Therefore, the average cost per diner 1. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners?u A a. A party of four diners who order three drinks in total, sin"im% 1 AN 6b? 3 drink b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? a. A party of four diners who order three drinks in total. A party of two diners who do not order any drinks. A lone diner who orders two drinks. c. hy do the costs per diner for the three different parties differ from each other and from the overall average cost of S16 per din

Explanation / Answer

Answer:

First of all we need to find out the cost per activity as under

  Activity Cost Pool

Activity
Measure

Total Cost

Total Activity

Cost
per
activity

A

B

C=A/B

  Serving a party of diners

Number of parties served

33000

6000

5.5

Per
parties

  Serving a diner

Number of diners served

138000

15000

9.2

Per
diners

  Serving a drink

Number of drinks ordered

24000

10,000

2.4

Per
drinks

1

Calculation for the total cost of serving each of the following parties of diners as under

a)

Cost
per
activity

Activity

Cost

A

B

C=A*B

  Serving a party of diners

5.5

Per
parties

1

Party

5.5

  Serving a diner

9.2

Per
diners

4

Dinner

36.8

  Serving a drink

2.4

Per
drinks

3

Drink

7.2

Total

49.5

b)

Dinner

Activity

Cost

A

B

C=A*B

  Serving a party of diners

5.5

Per
parties

1

Party

5.5

  Serving a diner

9.2

Per
diners

2

Dinner

18.4

  Serving a drink

2.4

Per
drinks

0

Drink

0

Total

23.9

c)

Party

Activity

Cost

A

B

C=A*B

  Serving a party of diners

5.5

Per
parties

1

Party

5.5

  Serving a diner

9.2

Per
diners

1

Dinner

9.2

  Serving a drink

2.4

Per
drinks

2

Drink

4.8

Total

19.5

___________________________________________________________

2

Cost per dinner

=total cost computed/ number of dinners

2a)

Cost per dinner

=total cost computed/ number of dinners

=49.50/4

=$12.375

2b)

Cost per dinner

=total cost computed/ number of dinners

=23.90/2

=11.95

2C)

Cost per dinner

=total cost computed/ number of dinners

=19.5 /1

=$19.5

_________________________

3

here we can see that average cost is different from party to party because there are different in activities. So cost per dinner is decreases as the number of dinner per party increases

  Activity Cost Pool

Activity
Measure

Total Cost

Total Activity

Cost
per
activity

A

B

C=A/B

  Serving a party of diners

Number of parties served

33000

6000

5.5

Per
parties

  Serving a diner

Number of diners served

138000

15000

9.2

Per
diners

  Serving a drink

Number of drinks ordered

24000

10,000

2.4

Per
drinks

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