Question

Question 3 - Activity-based costing Abby, Barry, and Chris have decided to share an apartment in Playa Vista for the coming school year. The rent will be $3,000 per month. There are two bedrooms in the apartment. Barry and Chris will share a bedroom and Abby will have her own. They estimate that groceries will cost $600 per month and that Barry and Chris will each eat 20 pounds of groceries and Abby will eat 10 pounds. Internet access will cost $60 per month. Abby uses the Internet 10 hours day and Barry uses the Internet 5 hours a day. Chris does not use the internet at all. Required: (a) Barry suggests that they share the costs equally. Calculate the total cost that each person would pay if they share the costs equally. (b) Chris doesn't like Barry's idea and suggests that each cost be allocated to each person based on their consumption of the activity. List the activity measure for each cost. Calculate the total cost that each person would pay based on their consumption of the activities

Answer 1

Total cost
Rent	3,000
Groceries	600
Internet access	60
Total cost	3,660

1. Share cost equally

Cost per person = total cost / total person

                              = 3,660 / 3

                              = 1,220

Each person has to bear 1,220 costs per month

2. As per Activity Based Costing

Activity	total cost	Abby	Barry	Chris
Rent	3,000	1,500 (for one bedroom)	750 (1,500 x1/2)	750 (1,500 x1/2)
Groceries	600	120 (600 x 10/50)	240 (600 x 20/50)	240 (600 x 20/50)
Internet access	60	40 (60 x 10/15)	20 (60 x 5/15)	-
Total cost	3,660	1,660	1,010	990