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	$	17,820	5,400	parties
Serving a diner	Number of diners served	$	95,000	12,500	diners
Serving drinks	Number of drinks ordered	$	36,050	10,300	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 dinners? (Round your intermediate calculations to 2 decimal places. Round your Total Cost final answers to 2 decimal places and your Average Cost final answers to 3 decimal places.)

1. A party with 3 diners and 4 drinks: total cost? avg per diner?

2. A party with 2 diners: total cost? avg per diner?

3. A party with 1 diners and 3 drinks: total cost? avg per diner?

Answer 1

		Total Cost	Average Cost
1	A party with 3 diners and 4 drinks	$               40.10	$             13.367
2	A party with 2 diners	$               18.50	$               9.250
3	A party with 1 diner and 3 drinks	$               21.40	$             21.400

Working:

Activity Cost Pool	Total Cost $	Total Activity	Cost per Unit of Activity
Serving a Party of Diners	$                                   17,820	5400	$           3.30	per party
Serving a Diner	$                                   95,000	12500	$           7.60	per diner
Serving Drinks	$                                   36,050	10300	$           3.50	per drink

	Total Cost:
1	$3.30 + (3 x $7.60) + (4 x $3.50) = $3.30 + $22.80 + $14 = $40.10
2	$3.30 + (2 x $7.60) = $3.30 + $15.20 = $18.50
3	$3.30 + $7.60 + (3 x $3.50) = $3.30 + $7.60 + $10.50 = $21.40
	Average Cost:
1	$40.10/3 = $13.367
2	$18.50/2 = $9.250
3	$21.40