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

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 4 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) $ 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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