Question

Hiram’s Lakeside is a popular restaurant located on Lake Washington in Seattle. 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 three major activities and then completed the first-stage allocations of costs to the activity cost pools. The results appear below.

Activity Cost Pool	Activity Measure	Total Cost		Total Activity
Serving a party of diners	Number of parties served	$	11,220	5,100	parties
Serving a diner	Number of diners served	$	109,470	12,300	diners
Serving drinks	Number of drinks ordered	$	25,440	10,600	drinks

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries.

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, depend on the number of diners served or the number of drinks served.

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 (including organization-sustaining costs) was $180,000 and that 12,000 diners had been served. Therefore, the average cost per diner was $15.

Required:

1&2. According to the activity-based costing system, what is the total cost and average cost per diner for serving each of the following parties of diners?

	Total Cost Average Cost a. A party of three diners who order four drinks in total. per diner b. A party of two diners who do not order any drinks. per diner c. A party of one diner who orders two drinks. per diner

Answer 1

								a	b	c
Activity Cost Pool	Activity Measure		Total Cost	Total Activity		Cost per activity		Activity	Total Cost	Activity	Total Cost	Activity	Total Cost
Serving a party of diners	Number of parties served	$	11,220	5,100	parties	$       2.20	per party	1.00	$       2.20	1.00	$       2.20	1.00	$       2.20
Serving a diner	Number of diners served	$	109,470	12,300	diners	$       8.90	per diner	3.00	$    26.70	2.00	$    17.80	1.00	$       8.90
Serving drinks	Number of drinks ordered	$	25,440	10,600	drinks	$       2.40	per drink	4.00	$       9.60	-	$           -	2.00	$       4.80
								Total	$    38.50		$    20.00		$    15.90
								Average cost	$    12.83		$    10.00		$    15.90
	Total Cost	Average Cost
a	$          38.50	$               12.83
b	$          20.00	$               10.00
c	$          15.90	$               15.90