Question

2. Leeds Catering uses activity-based costing for allocating its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system:

	Activity Cost Pools
	Preparing	Arranging
	Meals	Functions
Wages	£0.80	£180.00
Supplies	£0.40	£290.00
Other expenses	£0.20	£140.00

The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.
Management would like to know whether the company made any money on a recent function at which 90 meals were served. The company catered the function for a fixed price of £25.00 per meal. The cost of the raw ingredients for the meals was £13.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above. What would be the ‘yellow margin' in the action analysis report? (Round to the nearest whole pound.)

Answer 1

Leeds Catering
Action Analysis Report
Sales (90 x £25)		2250
Green costs:
Supplies-preparing meals (90 x £0.40)	36
Supplies-arranging functions	290
Raw ingredients (90 x £13.90)	1251	1577
Green margin		673
Yellow costs:
Wages-preparing meals (90 x £0.80)	72
Wages-arranging functions	180	252
Yellow margin		421
Red costs:
Other expenses-preparing meals (90 x £0.20)	18
Other expenses-arranging functions	140	158
Red margin		263

Yellow margin: $421