In: Accounting
Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her catered parties. Each party is limited to 20 guests and requires four people to serve and clean up. Cathy offers two types of parties, an afternoon picnic and an evening formal dinner. The breakdown of the costs follows:
Activities (and cost drivers) Afternoon Picnic Formal Dinner Advertising (parties) $ 100 per party $ 100 per party Planning (parties) $ 75 per party $ 125 per party Renting equipment $ 50 per party plus $ 75 per party plus (parties, guests) $ 10 per guest $ 20 per guest Obtaining insurance (parties) $ 200 per party $ 400 per party Serving (parties, servers) $ 50 per server per party $ 75 per server per party Preparing food (guests) $ 20 per guest $ 30 per guest Per party costs do not vary with the number of guests. Required: a. Compute the cost of a 20-guest afternoon picnic. b. Compute the cost of a 20-guest evening formal dinner. c. How much should Cathy charge for each guest for each type of party if she wants to cover her costs? (Round your answers to 2 decimal places.)
a. Cost of a 20 guest afternoon picnic will be:
Activities (and cost drivers) | Afternoon Picnic | ||
Advertising (parties) | 100 | per party | 100 |
Planning (parties) | 75 | per party | 75 |
Renting equipment | 50 | per party plus | 50 |
(parties, guests) | 10 | per guest | 200 |
Obtaining insurance (parties) | 200 | per party | 200 |
Serving (parties, servers) | 50 | per server per party | 200 |
Preparing food (guests) | 20 | per guest | 400 |
1,225 |
b. Cost of a 20-guest evening formal dinner is:
Activities (and cost drivers) | Formal Dinner | ||
Advertising (parties) | 100 | per party | 100 |
Planning (parties) | 125 | per party | 125 |
Renting equipment | 75 | per party plus | 75 |
(parties, guests) | 20 | per guest | 400 |
Obtaining insurance (parties) | 400 | per party | 400 |
Serving (parties, servers) | 75 | per server per party | 300 |
Preparing food (guests) | 30 | per guest | 600 |
2,000 |
c. Cathy charge for each guest for each type of party if she wants to cover her costs will be:
Afternoon picnic = 1,225/20 = $61.25 per guest
Forman Dinner 2,000/20 = $100 per guest