Hiram’s Lakeside is a popular restaurant located on Lake Washington in Seattle.
ID: 2341272 • Letter: H
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.
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.
Activity Cost Pool Activity Measure Total Cost Total Activity Serving a party of diners Number of parties served $ 16,240 5,600 parties Serving a diner Number of diners served $ 117,800 12,400 diners Serving drinks Number of drinks ordered $ 32,860 10,600 drinks 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.) Total Cost Average Cost a. A party of three diners who order three drinks in total. b. A party of five diners who do not order any drinks. c. A party of one diner who orders four drinks. per diner per diner per dinerExplanation / Answer
Solution:
First of all we need to find out the rate per activity.
Activity Cost Pool
Activity Measure
Total Cost (A)
Total Activity (B)
Cost per Activity (A/B)
Serving a party of diners
Number of parties served
$16,240
5,600
parties
$2.90
per party
Serving a diner
Number of diners served
$117,800
12,400
diners
$9.50
per diner
Serving drinks
Number of drinks ordered
$32,860
10,600
drinks
$3.10
per drink
Now, we analyze each case
Case A
Number of Party
Number of Diner
Number of Drink
Total
Case A (P)
1
3
3
Rate per Activity (Q)
$2.90
$9.50
$3.10
Total Cost (P*Q)
$2.900
$28.500
$9.300
$40.700
Average Cost per Diner
(Total Cost $40,700 / Number of Diner 3)
$13.567
Case B
Number of Party
Number of Diner
Number of Drink
Total
Case B (P)
1
5
0
Rate per Activity (Q)
$2.90
$9.50
$3.10
Total Cost (P*Q)
$2.90
$47.50
$0.00
$50.40
Average Cost per Diner
$10.08
(Total Cost $50.40 / Number of Diner 5)
Case C
Number of Party
Number of Diner
Number of Drink
Total
Case C (P)
1
1
4
Rate per Activity (Q)
$2.90
$9.50
$3.10
Total Cost (P*Q)
$2.90
$9.50
$12.40
$24.80
Average Cost per Diner
$24.80
(Total Cost $24.80 / Number of Diner 1)
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Activity Cost Pool
Activity Measure
Total Cost (A)
Total Activity (B)
Cost per Activity (A/B)
Serving a party of diners
Number of parties served
$16,240
5,600
parties
$2.90
per party
Serving a diner
Number of diners served
$117,800
12,400
diners
$9.50
per diner
Serving drinks
Number of drinks ordered
$32,860
10,600
drinks
$3.10
per drink
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