Richard's Events provides catering services, among other services. The company has adopted activity-based costing (ABC) for the catering services. The ABC system classifies activities into two groups based on the cost driver used: Diners and Events. Each event is limited to 25 guests and requires four people to serve and clean up. Richard's Events offers two types of catered events—an informal, outside party and a formal, seated meal. The cost accountant at Richard's Events has developed the following cost-driver rates for the individual activities: Activities (and cost drivers) Informal Party Formal Dinner Advertising (events) $ 134 per event $ 134 per event Planning (events) 104 per event 164 per event Renting equipment (events, diners) 74 per event plus 19 per diner 104 per event plus 31 per diner Obtaining insurance (events) 254 per event 494 per event Serving (events) 254 per event 374 per event Preparing food (diners) 31 per diner 43 per diner Per-event costs do not vary with the number of diners. Questions: Compute the cost of a 25-guest informal party. Compute the cost of a 25-guest formal meal. How much should Richard's Events charge for each diner for each type of event if the company is to cover its costs?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

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Question

Richard's Events provides catering services, among other services. The company has adopted activity-based costing (ABC) for the catering services. The ABC system classifies activities into two groups based on the cost driver used: Diners and Events. Each event is limited to 25 guests and requires four people to serve and clean up. Richard's Events offers two types of catered events—an informal, outside party and a formal, seated meal.

The cost accountant at Richard's Events has developed the following cost-driver rates for the individual activities:

Activities (and cost drivers)	Informal Party	Formal Dinner
Advertising (events)	$ 134	per event		$ 134	per event
Planning (events)	104	per event		164	per event
Renting equipment (events, diners)	74	per event	plus 19 per diner	104	per event	plus 31 per diner
Obtaining insurance (events)	254	per event		494	per event
Serving (events)	254	per event		374	per event
Preparing food (diners)	31	per diner		43	per diner

Per-event costs do not vary with the number of diners.

Questions:

Compute the cost of a 25-guest informal party.
Compute the cost of a 25-guest formal meal.
How much should Richard's Events charge for each diner for each type of event if the company is to cover its costs?

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