Hiram’s Lakeside is a popular restaurant located on Lake Washington in Seattle.
ID: 2425092 • 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, depends 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.
According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your intermediate calculations and final answers to 2 decimal places.)
a. A party of three diners who order three drinks in total
b. A party of three diners who do not order any drinks
c. A party of one diner who orders 4 drinks
2.
Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Round your intermediate calculations and final answers to 2 decimal places.)
a. A part of three diner who order 3 drinks in total
b. A party of three diners who do not order any drinks
c. A party of one diner who orders 4 drinks
Activity Cost Pool Activity Measure Total Cost Total Activity Serving a party of diners Number of parties served $ 13,000 5,000 parties Serving a diner Number of diners served $ 112,640 12,800 diners Serving a drink Number of drinks ordered $ 29,400 10,500 drinksExplanation / Answer
Answer
Answer 1
Computation of the activity based overhead
Figures in $
Activity
Particulars
Serving a party of diners
Serving a diner
Serving a drink
Cost pool
a
13000
112640
29400
Cost Driver
Parties
diners
drinks
Cost driver volume
b
5000
12800
10500
Cost per unit of cost driver (a/b)
2.60
8.80
2.80
a. A party of three diners who order three drinks in total
Figures in $
Activity
Cost per unit of cost driver
Cost driver volume
Total Cost
A
B
A*B
Serving a party of diners
2.60
1
2.60
Serving a diner
8.80
3
26.40
Serving a drink
2.80
3
8.40
Total cost
37.40
b. A party of three diners who do not order any drinks
Figures in $
Activity
Cost per unit of cost driver
Cost driver volume
Total Cost
A
B
A*B
Serving a party of diners
2.60
1
2.60
Serving a diner
8.80
3
26.40
Serving a drink
2.80
0
0.00
Total cost
29.00
c. A party of one diner who orders 4 drinks
Figures in $
Activity
Cost per unit of cost driver
Cost driver volume
Total Cost
A
B
A*B
Serving a party of diners
2.60
1
2.60
Serving a diner
8.80
1
8.80
Serving a drink
2.80
4
11.20
Total cost
22.60
Answer 2.
a. A party of three diner who order 3 drinks in total
Figures in $
Activity
Cost per unit of cost driver
Cost driver volume
Total Cost
A
B
A*B
Serving a party of diners
2.60
1
2.60
Serving a diner
8.80
3
26.40
Serving a drink
2.80
3
8.40
Total cost (a)
37.40
Total number of diner (b)
3.00
Average cost per diner (a/b)
12.47
b. A party of three diners who do not order any drinks
Figures in $
Activity
Cost per unit of cost driver
Cost driver volume
Total Cost
A
B
A*B
Serving a party of diners
2.60
1
2.60
Serving a diner
8.80
3
26.40
Serving a drink
2.80
0
0.00
Total cost (a)
29.00
Total number of diner (b)
3.00
Average cost per diner (a/b)
9.67
c. A party of one diner who orders 4 drinks
Figures in $
Activity
Cost per unit of cost driver
Cost driver volume
Total Cost
A
B
A*B
Serving a party of diners
2.60
1
2.60
Serving a diner
8.80
1
8.80
Serving a drink
2.80
4
11.20
Total cost (a)
22.60
Total number of diner (b)
1
Average cost per diner (a/b)
22.60
Computation of the activity based overhead
Figures in $
Activity
Particulars
Serving a party of diners
Serving a diner
Serving a drink
Cost pool
a
13000
112640
29400
Cost Driver
Parties
diners
drinks
Cost driver volume
b
5000
12800
10500
Cost per unit of cost driver (a/b)
2.60
8.80
2.80
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