Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her catered parties. Each party is limited to 20 guests and requires 4 people to serve and clean up. Cathy offers two types of parties—an afternoon picnic and an evening formal dinner. The breakdown of the costs follows. Activities (and cost drivers)Afternoon PicnicFormal DinnerAdvertising (parties)$119per party$119per partyPlanning (parties)$98per party$134per partyRenting equipment (parties, guests)$53per party plus $14 per guest$79per party plus $23 per guestObtaining insurance (parties)$230per party$370per partyServing (parties, servers)$59per server per party$67per server per partyPreparing food (guests)$20per guest$34per guest Per party costs do not vary with the number of guests. Required:Compute the cost of a 20-guest afternoon picnic.Compute the cost of a 20-guest evening formal dinner.How much should Cathy charge for each guest for each type of party if she wants to cover her costs?

ABC stands for Activity based costing method, which identifies the firm activities and allocates the…

Answered: Cathy, the manager of Cathy’s Catering,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her catered parties. Each party is limited to 20 guests and requires 4 people to serve and clean up. Cathy offers two types of parties—an afternoon picnic and an evening formal dinner. The breakdown of the costs follows.

Activities (and cost drivers)	Afternoon Picnic	Formal Dinner
Advertising (parties)	$	119	per party	$	119	per party
Planning (parties)	$	98	per party	$	134	per party
Renting equipment (parties, guests)	$	53	per party plus $14 per guest	$	79	per party plus $23 per guest
Obtaining insurance (parties)	$	230	per party	$	370	per party
Serving (parties, servers)	$	59	per server per party	$	67	per server per party
Preparing food (guests)	$	20	per guest	$	34	per guest

Per party costs do not vary with the number of guests.

Required:

Compute the cost of a 20-guest afternoon picnic.
Compute the cost of a 20-guest evening formal dinner.
How much should Cathy charge for each guest for each type of party if she wants to cover her costs?

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