Question

Gino's Restaurant is a popular restaurant in Boston, Massachusetts. 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 the following major activities: Activity Cost Pool Serving a party of diners Serving a diner Serving drinks Activity Measure Number of parties served Number of diners served Number of drinks ordered A group of diners who ask to sit at the same table is counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served Data concerning these activities are shown below Serving a Party Serving a Diner Serving Drinks $32,800 $211,200 S69,600 8,000 parties 32,000 diners 58,000 drinks Total $313,600 Total cost Total activity 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 was $313,600 and that 32,000 dinars had been served. Therefore, the average cost per diner was $9.80 ($313,600 32,000 diners = $9.80 per diner) Required: 1. Compute the activity rates for each of the three activities 2. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? a. A party of four diners who order three drinks in total b. A party of two diners who do not order any drinks C. A lone diner who orders two drinks 3. Convert the total costs you computed in part (2) above to costs por diner. In other words, what is the average cost per diner for serving each of the following parties? a. A party of four diners who order three drinks in total b. A party of two diners who do not order any drinks C. A lono diner who orders two drinks

Answer 1

Part 1
	Calculation of Activity Rate
	Activity	Activity Cost(Col 1)	Cost Driver(Col 2)	Activity Rate(Col 1 / Col.2)
	Serving a party of diners	$                                         32,800	8000 parties	$                               4.10	Per partie
	Serving a diner	$                                      2,11,200	32000 diners	$                               6.60	Per diner
	Serving drinks	$                                         69,600	58000 drinks	$                               1.20	Per drink
Part 2	a.One party with 4 diners with 3 drinks
		Actibity Base	Actibity Rate	Cost allocated
	Party	1	$                                    4.10	$                               4.10
	Diners	4	$                                    6.60	$                             26.40
	Drinks	3	$                                    1.20	$                               3.60
	Total Cost			$                             34.10
	b.One party with 2 diners with no drinks
		Actibity Base	Actibity Rate	Cost allocated
	Party	1	$                                    4.10	$                               4.10
	Diners	2	$                                    6.60	$                             13.20
	Drinks	0	$                                        -	$                                   -
	Total Cost			$                             17.30
	c.Lone diners with 2 drinks
		Actibity Base	Actibity Rate	Cost allocated
	Party	0	$                                        -	$                                   -
	Diners	1	$                                    6.60	$                               6.60
	Drinks	2	$                                    1.20	$                               2.40
	Total Cost			$                               9.00
Part 3	a.One party with 4 diners with 3 drinks
	Total Cost	$                                           34.10
	No. of Diners	4
	Cost per diner($34.10/4)	$                                           8.525
	b.One party with 2 diners with no drinks
	Total Cost	$                                           17.30
	No. of Diners	2
	Cost per diner($17.30/2)	$                                           8.650
	c.Lone diners with 2 drinks
	Total Cost	$                                             9.00
	No. of Diners	1
	Cost per diner($9/1)	9