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Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her...

Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her catered parties. Each party is limited to 20 guests and requires 5 people to serve and clean up. Cathy offers two types of parties—an afternoon picnic and an evening formal dinner. The breakdown of the costs follows.

Activities (and cost drivers) Afternoon Picnic Formal Dinner
Advertising (parties) $ 95 per party $ 95 per party
Planning (parties) $ 94 per party $ 100 per party
Renting equipment (parties, guests) $ 40 per party plus $14 per guest $ 81 per party plus $20 per guest
Obtaining insurance (parties) $ 165 per party $ 355 per party
Serving (parties, servers) $ 47 per server per party $ 74 per server per party
Preparing food (guests) $ 24 per guest $ 28 per guest

Per party costs do not vary with the number of guests.

Required:

a. Compute the cost of a 20-guest afternoon picnic.

b. Compute the cost of a 20-guest evening formal dinner.

c. How much should Cathy charge for each guest for each type of party if she wants to cover her costs?

Business   Accounting   
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Homework Answers

Answer #1

Answer a.

Computation of cost of a 20-guest afternoon picnic

Amount ($)
Advertising 95
Planning 94
Renting equipment [40 + ($14 * 20 guests)] 320
Insurance 165
Serving ($47 * 5 servers) 235
Preparing food ($24 * 20 guests) 480
Cost of a 20-guest afternoon picnic $1,389

Answer b .

Computation of cost of a 20-guest evening formal dinner.

Amount ($)
Advertising 95
Planning 100
Renting equipment [81 + ($20 * 20 guests)] 481
Insurance 355
Serving ($74 * 5 servers) 370
Preparing food ($28 * 20 guests) 560
Cost of a 20-guest evening formal dinner $1,961

Answer c. If Cathy wants to cover her costs , she should charge $69.45 ($1,389 / 20 guests) for afternoon picnic & $98.05 ($1,961 / 20 guests) for evening formal dinner

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