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 Serving a party of diners Serving a diner Serving drinks Activity Measure Number of parties served Number of diners served Number of drinks ordered Total Cost Total Activity $ 19,140 5,800 parties $ 112,800 12,000 diners $ 37,800 10,800 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.)

Answer 1

STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL
			Activity	Total	Expected	Activity
ACTIVITY COST POOL	Measures	Overheads	Activity	Rate
Serving a party		Parties	19140	5800	3.3
Serving a dinner		Dinner	112800	12000	9.4
Serving a drink		Drink	37800	10800	3.5
Req 1.
Case-a
Serving Parties	(1*3.30)	3.3
Serving dinner	(6*9.40)	56.4
Serving drink	(4*3.50)	14
Total			73.7
Case-b
Serving Parties	(1*3.30)	3.3
Serving dinner	(5*9.40)	47
Serving drink	(0*3.50)	0
Total			50.3
Case-c
Serving Parties	(1*3.50)	3.5
Serving dinner	(1*9.40)	9.4
Serving drink	(2*3.50)	7
Total			19.9
Req2.			Average cost per dinner
Case-a	(73.70 / 6)	12.28	per dinner
Case-B	(50.3 / 5)		10.06	per dinner
Case-c	(19.90 / 1)	19.9	per dinner
FINAL ANSWER:			TOTAL	Average cost per diner
a. A party with six diners and 4 drinks	73.7	12.28
b. A party with 5 diners and no drink	50.3	10.06
c. A party with 1 diner and 2 drinks	19.9	19.9