Question

Jane’s Cookhouse is a popular restaurant located in a scenic setting. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an ABC study. The intern, in consultation with the owner, identified three major activities. The intern then completed the first-stage allocations of costs to the activity cost pools, using data from last month’s operations. The results appear below:

Activity Cost Pool	Activity Measure	Total Cost			Total Activity
Serving a party of diners	Number of parties served	$	20,905		5,650	parties
Serving a diner	Number of diners served	$	122,760		13,950	diners
Serving a drink	Number of drinks ordered	$	44,070		11,300	drinks

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries. A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.

     Prior to the ABC 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 $265,050 and that 13,950 diners had been served. Therefore, the average cost per diner was $19.

  

Required:

1.	According to the ABC system, what is the total cost of serving each of the following parties of diners?

a.	A party of five diners that orders four drinks in total. (Round your answers to 2 decimal places.)

        

b.	A party of two diners that does not order any drinks. (Round your answers to 2 decimal places.)

         

c.	A lone diner who orders two drinks. (Round your answers to 2 decimal places.)

         

  

2.	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 five diners that orders four drinks in total.
b.	A party of two diners that does not order any drinks.
c.	A lone diner who orders two drinks.
	(Round your answers to 2 decimal places.)

  
        

Answer 1

			Cost per unit of activity
	Serving a party		3.7	per party
	Serving a diner		8.8	per diner
	serving drinks		3.9	per drink
	(total cost/total activity)
1)
	party of four diners who order three drinks in total					63.3	(3.7+5*8.8+4*3.9)
	a party two diner who do not order any drink					21.3	(3.7+2*8.8+0)
	party of one diner who order two drinks					20.3	(3.7+8.8+3.9*2)
2)	party of four diners who order three drinks in total					12.66	(63.3/5)
	a party two diner who do not order any drink					10.65	(21.3/2)
	party of one diner who order two drinks					20.3	(20.3/1)