Question

Part 3: Activity-Based Costing
Banquet Services uses activity-based costing to compute the costs of
their catered parties. Each party is limited to 40 guests and requires five
people to serve and clean up. Two types of parties, an afternoon picnic
and an evening formal dinner, are offered. The breakdown of the costs
follows:
Activities (and cost drivers) Afternoon Picnic Formal Dinner
Advertising (parties) $175 per party $100 per party
Planning (parties) $50 per party $75 per party
Renting equipment $75 per party plus $75 per party plus
(parties, guests) $20 per guest $20 per guest
Obtaining insurance (parties) $200 per party $400 per party
Serving (parties, servers) $60 per server per party $90 per server per party
Preparing food (guests) $20 per guest $30 per guest
Per party costs do not vary with the number of guests.
Complete the following:
a. Compute the cost of a 40-guest afternoon picnic.
b. Compute the cost of a 40-guest evening formal dinner.
c. How much should Banquet Services charge per guest at a
minimum for both Afternoon Picnics and Formal Dinners to cover
their costs?
Cost

Answer 1

a) Cost of a 40 guest afternoon picnic
	Rate per unit	No of units	Total Cost
Activity & Cost Driver:	of cost driver	of cost driver	$
Advertising - parties	175	1	175
Planning -parties	50	1	50
Renting equipment - Parties	75	1	75
Guests	20	40	800
Insurance - parties	200	1	200
Serving -parties, servers	60	5	300
Preparing food - guests	20	40	800
			2130

b) Cost of a 40 guest evening formal dinner
	Rate per unit	No of units	Total Cost
Activity & Cost Driver:	of cost driver	of cost driver	$
Advertising - parties	100	1	100
Planning -parties	75	1	75
Renting equipment - Parties	75	1	75
Guests	20	40	800
Insurance - parties	400	1	400
Serving -parties, servers	60	5	300
Preparing food - guests	20	40	800
			2,550
C)Amount to be charged by Cathy to cover costs:
Afternoon picnic	$53.25	per guest
Formal dinner	$63.75	per guest