Question

Problem 7-22 Activity Rates and Activity-Based Management [LO2, LO3] Onassis Catering is a Greek company that provides passenger and crew meals to airlines operating out of two international airports in Athens and Corfu. The operations at the two airports are managed separately, and top management believes that there may be benefits to greater sharing of information between the two operations. To better compare the two operations, an ABC system has been designed with the active participation of the managers at both airports. The ABC system is based on the following activity cost pools and activity measures: Activity Cost Pool Meal preparation Flight-related activities Customer service Other (costs of idle capacity and organization-sustaining costs) Activity Measure Number of meals Number of flights Number of customers NA The operation at Athens International Airport (AIA) serves 1 million meals annually on 5,000 flights for 10 different airlines. (Each airline is considered one customer.) The annual cost of running the AIA airport operation, excluding only the costs of raw materials for meals, totals €4.361,500. Note: The currency in Greece is the euro, denoted by €. Annual Cost of the AIA Operation Cooks and delivery personnel wages Kitchen supplies Chef salaries Equipment depreciation Administrative wages and salaries Building costs €3,400,000 44,000 285,000 115,000 287,500 230,000 Total cost €4,361,500 To help determine the activity rates, employees were interviewed and asked how they divided their time among the four major activities. The results of employee interviews at AIA are displayed below: Distribution of Resource Consumption across Activities at the AIA Operation Other 25% Cooks and delivery personnel wages Kitchen supplies Chef salaries Equipment depreciation Administrative wages and salaries Building costs Meal Flight- Preparation Related 70% 100% 08 30% 20% 70% 0% 30% 0% 08 Customer Service 08 08 40% 03 40% 0% Total 100% 100% 100% 100% 100% 100% 10% 30% 30% 100% 0%

Answer 1

1.

	Meal Preparation	Flight Related	Customer Service	Other	Totals
Cooks and delivery personnel wages	$2,380,000	$850,000	$0	$170,000	$3,400,000
Kitchen supplies	44,000	0	0	0	44,000
Chef salaries	85,500	57,000	114,000	28,500	285,000
Equipment depreciation	80,500	0	0	34,500	115,000
Administrative wages and salaries	0	86,250	115,000	86,250	287,500
Building costs	0	0	0	230,000	230,000
Total costs	$2,590,000	$993,250	$229,000	$549,250	$4,361,500

2.

Activity at AIA	Meal Preparation 1,000,000 meals	Flight Related 5,000 flights	Customer Service 10 airlines
Cooks and delivery personnel wages	$2.38	$170	$0
Kitchen supplies	0.044	0	0
Chef salaries	0.0855	11.4	11,400
Equipment depreciation	0.0805	0	0
Administrative wages and salaries	0	23	11,500
Building costs	0	0	0
Total costs	$2.59	$204.4	$22,900