Question

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

The Tavern is a popular restaurant located in State College. 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 displayed below.

   

	Serving a Party		Serving a Dinner		Serving Drinks		Total
Total cost	$4,500		$36,500		$35,000		$76,000
Total activity	1,000	parties	5,000	diners	12,500	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 $76,000 and that 5,000 diners had been served. Therefore, the average cost per diner was $15.20 ($76,000 ÷ 5,000 diners = $15.20 per diner).

Required:
1.	Compute the activity rates for each of the three activities. (Round your final 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 three diners who order four 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 (2) 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 three diners who order four 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

1)	Activity rate for three activities
				Servig a	Serving a	Serving a
				party	diner	drink
	total cost	(a)		4,500	36,500	35,000
	total activity (b)			1,000	5,000	12,500
	activity rate c=a/b			4.5	7.3	2.8
2)				party	Diner	Drinks	total cost
a)	(a) A party of three diners who
	orders four drinks in total
	Number of activity			1	3	4
	cost per unit of activity			4.5	7.3	2.8
	total cost			4.5	21.9	11.2	37.6
b)	A party of two diners who do
	not order any drinks
	Number of activity			1	2	0
	cost per unit of activity			4.5	7.3	2.8
	total cost			4.5	14.6	0	19.1
c)	A party of one diner who order
	two drinks
	Number of activity			1	1	2
	cost per unit of activity			4.5	7.3	2.8
	total cost			4.5	7.3	5.6	17.4
3)	Average cost per diner
				Case (a)	Case (b)	Case (c
	total cost of diner (a)			37.6	19.1	17.4
	umber of dinersb			3	2	1
	average cost per diner c=a/b			12.53	9.55	17.4