Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her...

Activities (and cost drivers)	Afternoon Picnic			Formal Dinner
Advertising (parties)	$	97	per party	$	97	per party
Planning (parties)	$	56	per party	$	140	per party
Renting equipment (parties, guests)	$	42	per party plus $13 per guest	$	71	per party plus $22 per guest
Obtaining insurance (parties)	$	220	per party	$	395	per party
Serving (parties, servers)	$	41	per server per party	$	67	per server per party
Preparing food (guests)	$	24	per guest	$	27	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?

Solutions

Expert Solution

Solution a:

Computation of cost of 20 guest afternoon picnic
Particulars	Amount
Advertising (parties)	$97.00
Planning (parties)	$56.00
Renting equipment (parties, guests)	$302.00
Obtaining insurance (parties)	$220.00
Serving (parties, servers)	$164.00
Preparing food (guests)	$480.00

Total costs	$1,319.00

Solution b:

Computation of cost of 20 guest evening formal dinner
Particulars	Amount
Advertising (parties)	$97.00
Planning (parties)	$140.00
Renting equipment (parties, guests)	$511.00
Obtaining insurance (parties)	$395.00
Serving (parties, servers)	$268.00
Preparing food (guests)	$540.00

Total costs	$1,951.00

Solution c:

Amount to be charged for each guest for afternoon picnic = $1,319/20 = $65.95 per guest.

Amount to be charged for each guest for evening formal dinner = $1,951/20 = $97.55 per guest.

ekkarill92 answered 1 year ago

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