Question

Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $0.92 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $35.52 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $85.55 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below: Ericson Wedding Haupt Wedding Number of reception guests 76.00 187.00 Number of tiers on the cake 7.00 5.00 Cost of purchased decorations for cake $ 16.55 $ 80.83 Assuming that the company charges $605.85 for the Haupt wedding cake, what would be the overall margin on the order? Multiple Choice $516.02 $168.02 $161.69 $89.83

Answer 1

	Haupt Wedding
Revenue	605.85
Less: Costs
Cost of purchased decorations	80.83
Size-Related activity cost	172.04	=187*0.92
Complexity-Related cost	177.6	=35.52*5
Order-Related activity cost	85.55
Total costs	516.02
Overall margin on the order	89.83
Option 4 $89.83 is correct