Question

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	$	15,300	5,100	parties
Serving a diner	Number of diners served	$	110,940	12,900	diners
Serving drinks	Number of drinks ordered	$	33,280	10,400	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? (Round your intermediate calculations to 2 decimal places. Round your Total Cost final answers to 2 decimal places and your Average Cost final answers to 3 decimal places.)

A party of four diners who order five drinks in total: Total Cost? Average cost? per diner.

A party of two diners who do not order any drinks: Total Cost? Average Cost? per diner

A party of one diner who orders two drinks: Total Cost? Average Cost? per diner

Answer 1

ABC costing is a technique in which an organisation identifies activity and assign
the cost of each activity with resources to all products and services according to
the actual consumption by each.
Hiram's Lakeside
Working note 1- Calculation of Predetermined OH allocation Rate
	Total Cost /	Allocation base=	Predetermined OH allocation rate
Srving a party of diners	15300	5100	3	per party
Serving a diner	110940	12900	8.6	per diner
Serving a drink	33280	10400	3.2	per drink
	159520
part 1
a .
	Activity Driver	Activity Rate	Total cost
Srving a party of diners	1	3	3
Serving a diner	4	8.6	34.4
Serving a drink	5	3.2	16
Total Cost			53.4
Average cost			13.35	( 53.4/4)
b.
	Activity Driver	Activity Rate	Total cost
Srving a party of diners	1	3	3
Serving a diner	2	8.6	17.2
Serving a drink	0	3.2	0
Total Cost			20.2
Average cost			10.1	(20.2/2)
c.
	Activity Driver	Activity Rate	Total cost
Srving a party of diners	1	3	3
Serving a diner	1	8.6	8.6
Serving a drink	2	3.2	6.4
Total Cost			18
Average cost			18	(18/1)