Grogam Catering uses activity-based costing for its overhead costs. The company

Question

Grogam Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system: Activity Cost Pools Preparing Meals Arranging Functions Wages $1.30 $275 Supplies $0.50 $545 Other expenses $0.40 $75 The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 100 meals were served. The company catered the function for a fixed price of $25 per meal. The cost of the raw ingredients for the meals was $8.60 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above. For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost. Suppose an action analysis report is prepared for the function mentioned above. What would be the "red margin" in the action analysis report? (Round to the nearest whole dollar.)

Explanation / Answer

Grogam Catering Activity Cost Details Cost Pools Preparing Meals Arranging Functions Cost Category Wages                    1.30            275.00 Yellow Supplies                    0.50            545.00 Green Other Expenses                    0.40               75.00 Red Total Activity Rate                      2.20            895.00 Activity measure No of meals served No of functions catered Activity measure for recent function               100.00                 1.00 Raw ingredirnts cost per meal                    8.60 Profitability (Action) analysis Report No Of Meals served                     100 Details Amt $ Revenue @$25 per meal                  2,500 Raw Materials@8.6                     860 Overhead for Preparing Meals                     220 Overhead for Arranging functions                     895 Net Operating (Red ) Matgin                     525

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