Question

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 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, depends on the number of diners served or the number of drinks served. Data concerning these activities are shown below. Serving a Party Serving a Dinner Serving Drinks Total Total cost $43.200 $148,000 $72,000 $263,200 Total activity 8,000 parties 20,000 diners 48,000 drinks 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 $263,200 and that 20,000 diners had been served. Therefore, the average cost per diner was $13.16 (5263,200 - 20.000 diners = $13.16 per diner). Required: 1. Compute the activity rates for each of the three activities. (Round your answers to 2 decimal places.) Serving a Party Serving a Diner Serving Drinks Cost per unit of activity per party per diner per drink 2. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks C. A party of one diner who orders two drinks Total Party of four diners who order three drinks Party of two diners who order no drinks Party of one diner who orders two drinks

Answer 1

Activity Rate = Overhead Cost/Total Activity
Serving a party of diners	5.4	per party
Serving a diner	7.4	per diner
Serving drinks	1.5	per drink
Total Cost	Average Cost	Total cost	Average Cost
a.	A party of four diners who order three drinks in total.	39.5	9.875	per diner
b.	A party of two diners who do not order any drinks.	20.2	10.1	per diner
c.	A party of one diner who orders two drinks.	15.8	15.8	per diner

B С D E A 1 Activity Rate = Overhead Cost/Total Activity 2 Serving a party of diners 3 Serving a diner 4 Serving drinks 5 =43200/8000 =148000/20000 =72000/48000 per party per diner per drink tin on 0 0 6 7 Total Cost a. per diner Average Cost Total cost Average Cost A party of four diners who order three drinks in total. =B2+B3*4+B4*3 =C8/4 A party of two diners who do not order any drinks. =B2+B3*2+B4*0 =C9/2 per diner A party of one diner who orders two drinks. =B2+B3+B4*2 =C10/1 9 b. 10 c. per diner 11 12