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	Activity Measure
Meal preparation	Number of meals
Flight-related activities	Number of flights
Customer service	Number of customers
Other (costs of idle capacity and      organization-sustaining costs)	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 €4,127,600. Note : The currency in Greece is the euro, denoted by €.

Annual Cost of the AIA Operation
Cooks and delivery personnel wages	€	3,260,000
Kitchen supplies		48,100
Chef salaries		264,000
Equipment depreciation		101,000
Administrative wages and salaries		252,500
Building costs		202,000
Total cost	€	4,127,600

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
	Meal Preparation			Flight- Related			Customer Service			Other			Total
Cooks and delivery personnel wages		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 wages and salaries		0	%		30	%		40	%		30	%		100	%
Building costs		0	%		0	%		0	%		100	%		100	%

Required:

1. Perform the first-stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; input a 0 wherever it is required.)

Meal Preparation Flight- Related Customer Service Other Totals € 0 Cooks and delivery personnel wages Kitchen supplies 0 Chef salaries of Equipment depreciation Administrative wages and salaries Building costs 01 op 0 op 0 op 0 Total cost € € € € 0 €

2. Compute the activity rates for the activity cost pools. (Round your activity rates for meal preparation to 4 decimal places and flight-related to 2 decimal places. Do not leave any empty spaces; input a 0 wherever it is required.)

Answer 1

1.

	Meal Preparation	Flight Related	Customer Service	Other	Totals
Cooks and delivery personnel wages	$2,282,000	$815,000	$0	$163,000	$3,260,000
Kitchen supplies	48,100	0	0	0	48,100
Chef salaries	79,200	52,800	105,600	26,400	264,000
Equipment depreciation	70,700	0	0	30,300	101,000
Administrative wages and salaries	0	75,750	101,000	75,750	252,500
Building costs	0	0	0	202,000	202,000
Total costs	$2,480,000	$943,550	$206,600	$497,450	$4,127,600

2.

Activity at AIA	Meal Preparation 1,000,000 meals	Flight Related 5,000 flights	Customer Service 10 airlines
Cooks and delivery personnel wages	$2.282	$163	$0
Kitchen supplies	0.0481	0	0
Chef salaries	0.0792	10.56	10,560
Equipment depreciation	0.0707	0	0
Administrative wages and salaries	0	15.15	10,100
Building costs	0	0	0
Total costs	$2.48	$188.71	$20,660