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 $ 12,960 5,400 parties Serving a diner Number of diners served $ 101,600 12,700 diners Serving drinks Number of drinks ordered $ 26,520 10,200 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&2. According to the activity-based costing system, what is the total cost and average cost per diner for serving each of the following parties of diners?
Total Cost - Average Cost
A: A party of six diners who order five drinks in total.per diner.
B: A party of five diners who do not order any drinks.per diner
C: A party of one diner who orders four drinks.per diner
| Cost per unit of activity | ||||||||
| Serving a party | 2.4 | per party | ||||||
| Serving a diner | 8 | per diner | ||||||
| serving drinks | 2.6 | per drink | ||||||
| (total cost/total activity) | ||||||||
| total cost | ||||||||
| 1) | ||||||||
| party of six diners who order five drinks in total | 63.4 | (2.4+8*6+5*2.6) | ||||||
| a party five diner who do not order any drink | 42.4 | (2.4+8*5) | ||||||
| party of one diner who order four drinks | 20.8 | (2.4+8+2.6*4) | ||||||
| Average cost | ||||||||
| 2) | party of six diners who order five drinks in total | 10.57 | (63.4/6) | |||||
| a party five diner who do not order any drink | 8.48 | (42.4/5) | ||||||
| party of one diner who order four drinks | 20.8 | (20.8/1) | ||||||
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