Question

The Tavern is a popular restaurant located in State College. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified the following major activities:

Activity Cost Pool	Activity Measure
Serving a party of diners	Number of parties served
Serving a diner	Number of diners served
Serving drinks	Number of drinks ordered

Some costs, such as the cost of cleaning the linens that cover the restaurant's tables, vary with the number of parties served. Other costs, such as washing plates and glasses, depends on the number of diners served or the number of drinks served.

  

Data concerning these activities are displayed below.

   

	Serving a Party		Serving a Dinner		Serving Drinks		Total
Total cost	$5,100		$18,600		$20,400		$44,100
Total activity	1,500	parties	3,000	diners	12,000	drinks

   

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 was $44,100 and that 3,000 diners had been served. Therefore, the average cost per diner was $14.70 ($44,100 ÷ 3,000 diners = $14.70 per diner).

Required:
1.	Compute the activity rates for each of the three activities. (Round your final answers to 2 decimal places.)

     

2.	According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

   

a.	A party of four diners who order five drinks in total.
b.	A party of two diners who do not order any drinks.
c.	A party of one diner who orders three drinks.

3.	Convert the total costs you computed in part (2) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

   

a.	A party of four diners who order five drinks in total.
b.	A party of two diners who do not order any drinks.
c.	A party of one diner who orders three drinks.

Answer 1

1) Cost Per activity

ACTIVITY	Cost Of Activity	No. OF activity	Cost per Activity
Serving A Party	5100	1500	3.40 Per Party
Serving a Dinner	18600	3000	6.20 Per Dinner
Serving a Drinks	20400	12000	1.70 Per Drinks
Total	44100

2)

	Cost of Party	Cost of Dinner	Cost of Drinks	Total cost
Answer a)	3.40	24.80 (4*6.20)	8.50 (5*1.70)	$36.70
Answer b)	3.40	12.40 (2*6.20)	0	$15.80
Answer c)	3.40	6.20	5.10 (3*1.70)	$14.70
Total cost				67.20

3)

In Part (2) Total Dinner =4+2+1 = 7 Dinner

Average Cost Per Dinner = Total cost / No. Of Dinners = 67.20/7 = $9.60

Calculation of cost:

	No. Of Dinner	Total cost
Answer a)	4	$38.40
Answer b)	2	$19.20
Answer c)	1	$9.60
Total Cost		67.20