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
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.
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) | $ 124 | per event | $ 124 | per event | ||
| Planning (events) | 94 | per event | 154 | per event | ||
| Renting equipment (events, diners) | 64 | per event | plus 14 per diner | 94 | per event | plus 26 per diner |
| Obtaining insurance (events) | 244 | per event | 484 | per event | ||
| Serving (events) | 244 | per event | 364 | per event | ||
| Preparing food (diners) | 26 | per diner | 38 | per diner |
Per-event costs do not vary with the number of diners.
Required:
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Compute the cost of a 25-guest informal party.
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Compute the cost of a 25-guest formal meal.
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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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