Question

Problem 4-14 Compute and Use Activity Rates to Determine the Costs of Serving Customers (L04-2, LO4-3, L04-4) Gino's Restaurant is a popular restaurant in Boston, Massachusetts. 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 the following major activities: Activity Cost Pool Serving a party of diners Serving a diner Serving drinks Activity Measure Number of parties served Number of diners served Number of drinks ordered A group of diners who ask to sit at the same table is 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 Data concerning these activities are shown below: Total cost Total activity Serving a Party $52,800 8,000 parties Serving a Diner $240,000 40,000 diners Serving Drinks $67,200 56,000 drinks Total $360,000 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 was $360,000 and that 40,000 diners had been served. Therefore, the average cost per diner was $9.00 ($360,000 - 40,000 diners = $9.00 per diner).

Answer 1

Answer 1

Serving a party	$ 6.60	per party
Serving a diner	$ 6.00	per diner
Serving a drink	$ 1.20	per drink

Answer 2

	Particulars	Total cost
A	A party of 4 diners who order 3 drinks	$    34.20
B	A party of 2 diners who do not order any drink	$    18.60
C	A party of 1 diner who order 2 drinks	$    15.00

Answer 3

	Particulars	Average cost
A	A party of 4 diners who order 3 drinks	$   8.55	per dinner
B	A party of 2 diners who do not order any drink	$   9.30	per dinner
C	A party of 1 diner who order 2 drinks	$ 15.00	per dinner

Calculations:

Serving a party	=$52,800/8,000	per party
Serving a diner	=$240,000/40,000	per diner
Serving a drink	=$67200/56,000	per drink

	Particulars	Total cost
A	A party of 4 diners who order 3 drinks	=($6.6*1)+(6*4)+(1.2*3)
B	A party of 2 diners who do not order any drink	=($6.6*1)+(6*2)+(1.2*0)
C	A party of 1 diner who order 2 drinks	=($6.6*1)+(6*1)+(1.2*2)

Average Cost = total cost / Number of diners

In case of any doubt, please comment.