Question

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 5 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) $ 105 per party $ 105 per party Planning (parties) $ 64 per party $ 102 per party Renting equipment $ 45 per party plus $ 76 per party plus (parties, guests) $ 15 per guest $ 23 per guest Obtaining insurance (parties) $ 160 per party $ 405 per party Serving (parties, servers) $ 41 per server per party $ 82 per server per party Preparing food (guests) $ 22 per guest $ 28 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.)

Answer 1

a. Compute the cost of a 20-guest afternoon picnic.

cost driver	afternoon picnic
advertising	105
planning	64
Renting equipment	45
additional	300 (15x20)
insurance	160
Serving	205 (41x 5)
Preparing food	440 (22 x 20)
total cost	1,319

b. Compute the cost of a 20-guest evening formal dinner.

cost driver	Evening formal dinner.
advertising	105
planning	102
Renting equipment	76
additional	560 (28 x 20)
insurance	405
Serving	410 (82 x 5)
Preparing food	560 (20 x 28)
total cost	2,218

c. How much should Cathy charge for each guest for each type of party if she wants to cover her costs?

Afternoon party

Cost per guest = total cost / total guest

Cost per guest = 1,319 / 20

Cost per guest= 65.95  

Afternoon party

Cost per guest = total cost / total guest

Cost per guest = 2,218 / 20

Cost per guest= 110.9