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	$	16,120	5,200	parties
Serving a diner	Number of diners served	$	106,140	12,200	diners
Serving drinks	Number of drinks ordered	$	33,330	10,100	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 dinners? (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.) Please include steps & work

	Total Cost Average Cost a. A party of five diners who order five drinks in total. per diner b. A party of two diners who do not order any drinks. per diner c. A party of one diner who orders two drinks. per diner

Answer 1

• All working forms part of the answer
• Workings:

Activity Cost Pool	Activity Measure	Total Cost	Total Activity		Activity rates
Serving a party of diners	Number of parties served	$           16,120.00	5,200	parties	$                      3.10	per parties
Serving a diner	Number of diners served	$        106,140.00	12,200	diners	$                      8.70	per diners
Serving drinks	Number of drinks ordered	$           33,330.00	10,100	drinks	$                      3.30	per drinks

• Answer along with working

		Serving a party of diners	Serving a diner	Serving drinks	Total Cost	Average Cost
		[A = no. of party x $ 3.10]	[B = no. of diners x $ 8.70]	[C = no. of drinks x $ 3.30]	[D = A+B+C]	[E = D/no. of diners]
a.	A party of five diners who order five drinks in total.	$                       3.10	$                   43.50	$                   16.50	$                   63.10	$                  12.620	per diner
b.	A party of two diners who do not order any drinks.	$                       3.10	$                   17.40	$                          -	$                   20.50	$                  10.250	per diner
c.	A party of one diner who orders two drinks.	$                       3.10	$                     8.70	$                     6.60	$                   18.40	$                  18.400	per diner