Hiram’s Lakeside is a popular restaurant located on Lake Washington in Seattle. 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 three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below.
| Activity Cost Pool | Activity Measure | Total Cost | Total Activity | ||
| Serving a party of diners | Number of parties served | $ | 21,660 | 5,700 | parties |
| Serving a diner | Number of diners served | $ | 110,500 | 13,000 | diners |
| Serving a drink | Number of drinks ordered | $ | 42,000 | 10,500 | 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.
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, depend on the number of diners served or the number of drinks served.
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 $180,000 and that 12,000 diners had been served. Therefore, the average cost per diner was $15.
Required:
1. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your intermediate calculations and final answers to 2 decimal places.)
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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? (Round your intermediate calculations and final answers to 2 decimal places.)
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Answer 1:
| Particulars | Total cost | |
| A | A party of 4 diners who order 5 drinks | $ 57.80 |
| B | A party of 4 diners who do not order any drink | $ 37.80 |
| C | A party of 1 diner who order 4 drinks | $ 28.30 |
Explanation:
| Particulars | Total cost | |
| A | A party of 4 diners who order 5 drinks | =(21660/5700*1)+(110500/13000*4)+(42000/10500*5) |
| B | A party of 4 diners who do not order any drink | =(21660/5700*1)+(110500/13000*4)+(42000/10500*0) |
| C | A party of 1 diner who order 4 drinks | =(21660/5700*1)+(110500/13000*1)+(42000/10500*4) |
Answer 2:
| Particulars | Average cost | ||
| A | A party of 4 diners who order 5 drinks | $ 14.450 | per dinner |
| B | A party of 4 diners who do not order any drink | $ 9.450 | per dinner |
| C | A party of 1 diner who order 4 drinks | $ 28.300 | per dinner |
In case of any doubt, please feel free to comment.
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