Question

Jane's Cookhouse is a popular restaurant located in a scenic setting. 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 three major activities. The intem then completed the first-stage allocations of costs to the activity cost pools, using data from last month's operations. The results appear below: Activity Cost Pool Serving a party of diners Total Cost $12,000 Total Activity 5,000 parties Serving a diner Activity Measure Number of parties served Number of diners served Number of drinks ordered Number of diners 12,000 diners Serving a drink $90,000 $26,000 $52,000 10,000 drinks Other organization sustaining costs 12,000 diners The above costs include all of the costs of the restaurant except for organization-sustaining costs such as property taxes and top-management salaries. A group of diners who ask to sit at the same table are 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. 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 (including organization-sustaining costs) was $180,000 and that 12,000 diners had been served. Required: 1. Using the traditional method, assign the total cost for the month based on a single cost driver of # of diners. Compute the total cost for serving each of the following. (3 marks) 1. A party of four diners who order three drinks in total. 2. A party of two diners who do not order any drinks. 3. A lone diner who orders two drinks. 2. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (4 marks)

Answer 1

is traclitional method, only considered Rate one driver pen dined Total cost Total no. of 180000 12ooo $15/ diner dines = Totu Four = cost diners 15 X 4 who ordered 3 drinks - Party of two dinees drink - any to diners who who do not order cost = 15 X 2 = 30$ 8. hone Total two drinks dinen who orders cost = 15 x lens = $.15 calculation of cost per driver as per A B C Activity - Total cost & Total activity & Cost per Оex i ug party, 12000 53000 = $ 2.4 of diners a congue I somring 90000 12000 = $7.5 Sexring a drinkrus 26000 10000 a $2.6 other costs 52000 12000 = $ 4.33 2020-2-5 12:17

- Party of four diners who order 3 drinks Total cost a Sogning a party seuning drinks other costs TTT 2020-2-5 12:18 2.4 9.8 17.33 27.53 (3x 2.6 (4 X 4.33) 2. Party order of tuno drinks diners who do not Total costs Senning a party otheu costs . (2x 4.33) 2.4 9.66 11.06 3. A lone diner who orders 2 drinks Total costs a seuning a dinea 3 serning drinks cax2.6) other costs ClX 4.33) 7.5 5.2 4.33 17.03 An per 5 diner (from abone) 4 diners - $6.8825 case a cost 27.53 SO 11.06 - 2 diners case b) = $5.53 - I diner = $17.03 case ) 17.03
4. Part 1 is calculated using traditional method whereby one single blanket rate is used to calculate cost per diner whereas in part 2 we have used calculated cost per driver to get more accurate results.

In part 2 we have used calculated cost per driver to calculate total costs. In part 3 we have used the total costs calculated in part 2 and divided by the total no. of drivers to get average cost per driver.

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