Problem6 You and your friends go to a restaurant as a group. At the end of the m
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Problem6 You and your friends go to a restaurant as a group. At the end of the meal, the issue arises of how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divided up the bill accordingly. Another is to split the bill equally among the individuals. Required: (1) Which system for dividing the bill is more equitable? (5 marks) (2) Which system is easier to use? (5 marks) (3) How does this issue relate to the material covered in Activity-Based Costing? (5 marks)Explanation / Answer
Problem 6 –
Answer – The activity based costing system is more equitable in dividing the bill. The system enables accurate measure of consumption by each friend and allocates bill cost accordingly. So, each of the friends get to pay only for the proportion of food and drinks consumed.
Though this traditional method does not provide accurate assignment of cost, it is more simple to use as dividing the total bill by the number of friends provides you with the cost per friend.
In the given situation, the friends have to option to share the bill equally or to assign the cost based on the food consumption by each of the friends. Hence, costs are first pooled and then assigned based on the usage of the cost pools by the respective products or departments or individuals.
For the present situation, cost pools can be identified based on the items of food ordered. Then estimate the cost of each food ordered to create a cost pool. Then proceed to identify the activity rate or cost pool rate based on the total consumption and assign costs on basis of proportion of food consumed by each friend.
This way, the friend who consumed maximum foods gets to pay the maximum portion of the food, while the person who consumed least gets to pay only for the portion of food consumed.
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