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?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Problem 4-14 (Algo) Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO4-2, LO4-3, LO4-4]
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 | Activity Measure |
|---|---|
| Serving a party of diners | Number of parties served |
| Serving a diner | Number of diners served |
| Serving drinks | 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:
| Serving a Party | Serving a Diner | Serving Drinks | Total | ||||
|---|---|---|---|---|---|---|---|
| Total cost | $ 65,700 | $ 77,000 | $ 81,000 | $ 223,700 | |||
| Total activity | 9,000 | parties | 10,000 | diners | 45,000 | drinks |
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 $223,700 and that 10,000 diners had been served. Therefore, the average cost per diner was $22.37 ($223,700 ÷ 10,000 diners = $22.37 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.
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