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. 25 points 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: eBook References 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

Answer 1

Part 1

	Meal preparation	Flight- related	Customer service	Other	Totals
Cooks and delivery personnel ages	2380000	850000	0	170000	3400000
Kitchen supplies	44000	0	0	0	44000
Chef salaries	85500	57000	114000	28500	285000
Equipment depreciation	80500	0	0	34500	115000
Administrative ages and salaries	0	86250	115000	86250	287500
Building costs	0	0	0	230000	230000
Total cost	$2590000	$993250	$229000	$549250	$4361500

Allocation of cost = cost * proprtion provided

	Meal preparation	Flight- related	Customer service	Other	Totals
Cooks and delivery personnel ages	70%	25%	0%	5%	100%
Kitchen supplies	100%	0%	0%	0%	100%
Chef salaries	30%	20%	40%	10%	100%
Equipment depreciation	70%	0%	0%	30%	100%
Administrative ages and salaries	0%	30%	40%	30%	100%
Building costs	0%	0%	0%	100%	100%

Part 2

	Meal preparation 1000000 meals	Flight- related 5000 flights	Customer service 10 airlines
Cooks and delivery personnel ages	2.3800	170.00	0
Kitchen supplies	0.0440	0.00	0
Chef salaries	0.0855	11.40	11400
Equipment depreciation	0.0805	0.00	0
Administrative ages and salaries	0.0000	17.25	11500
Building costs	0.0000	0.00	0
Total cost	$2.5900	$198.65	$22900

Activity rate = allocated cost/ amount of activity