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: Total cost Total activity Serving a Party $43,200 8,000 parties Serving a Diner $148,000 20,000 diners Serving Drinks $72,000 48,000 drinks Total $263,200 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 $263,200 and that 20,000 diners had been served. Therefore, the average cost per diner was $13.16 ($263,200 = 20,000 diners = $13.16 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 per 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 lone diner who orders two drinks.

Answer 1

Gino's Restaurants
Ans 1)
	Activity Rate for each of the activity
	(A)	(B)	(A)/(B)
Activity cost pool	Total Cost	Total Activity	Activity Rate
Serving a Party	$                                                                                         43,200.00	8000	$                     5.40	Per party
Serving a Dinner	$                                                                                      1,48,000.00	20000	$                     7.40	per dinner
Serving Drinks	$                                                                                         72,000.00	48000	$                     1.50	per drink
Ans 2a)
A Party of four dinners who orders three drinks in total
Cost of Party+Number of Dinner* cost per dinner+Number of Drinks*Cost per drinks
$5.4+4*$7.40+3*$1.50=	$                                                                                                  39.50
Ans 2b)
A Party of two dinners who do not orders any drinks
Cost of Party+Number of Dinner* cost per dinner+Number of Drinks*Cost per drinks
$5.4+2*$7.40+0*$1.50=	$                                                                                                  20.20
Ans 2c )
A lone dinner who orders two drinks
Cost of Party+Number of Dinner* cost per dinner+Number of Drinks*Cost per drinks
0*$5.4+1*$7.40+2*$1.50=	$                                                                                                  10.40
		Total
a)	A Party of four dinners who orders three drinks in total	$                              39.50
b)	A Party of two dinners who do not orders any drinks	$                              20.20
c )	A lone dinner who orders two drinks	$                              10.40
Ans 3a,b,c)
	Cost of 4 Dinners	Cost of 2 dinners	a lone dinner
Total cost=(A)	$                                                                                                  39.50	$                              20.20	$                  10.40
Number of Dinners=(B)	4	2	1
Average cost per dinner=(A)/(B)	$                                                                                                    9.88	$                              10.10	$                  10.40
		Average cost
a)	A Party of four dinners who orders three drinks in total	$                                9.88	Per dinner
b)	A Party of two dinners who do not orders any drinks	$                              10.10	Per dinner
c )	A lone dinner who orders two drinks	$                              10.40	Per dinner