Question

Problem 3-14A Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO3-2, LO3-3, LO3-4]

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	Activity Measure
Serving a party of diners	Number of parties served
Serving a diner	Number of diners served
Serving drinks	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	$66,400		$102,000		$51,600		$220,000
Total activity	8,000	parties	20,000	diners	43,000	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 $220,000 and that 20,000 diners had been served. Therefore, the average cost per diner was $11.00 ($220,000 ÷ 20,000 diners = $11.00 per diner).

Required:
1.	Compute the activity rates for each of the three activities. (Round your answers to 2 decimal places.)

     

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.

3.	Convert the total costs you computed in part (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (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.

Answer 1

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Requirement -1
	Serving a Party		Serving a Dinner		Serving Drinks		Total
Total cost A	$       66,400		$       102,000		$               51,600		$       220,000
Total activity B	8000	parties	20000	diners	43000	drinks
Activity Rate A/B	$            8.30	per Party	$              5.10	per Dinner	$                    1.20	per Drink
Requirement -2 and 3
a .A party of four diners who order three drinks in total
	Rate	Activity	Total Cost	No of Dinners	Cost per Dinner
A Party	$            8.30	1	$              8.30
Four Dinner	$            5.10	4	$            20.40
3 Drinks	$            1.20	3	$              3.60
Total			$            32.30	4	$                    8.08
b. A party of two diners who do not order any drinks
	Rate	Activity	Total Cost	No of Dinners	Cost per Dinner
A Party	$            8.30	1	$              8.30
Two Dinner	$            5.10	2	$            10.20
No Drinks	$            1.20	0	$                   -
Total			$            18.50	2	$                    9.25
c. A party of one diner who orders two drinks
	Rate	Activity	Total Cost	No of Dinners	Cost per Dinner
A Party	$            8.30	1	$              8.30
One Dinner	$            5.10	1	$              5.10
Two Drinks	$            1.20	2	$              2.40
Total			$            15.80	1	$                  15.80