Problem - The Tavern is a popular restaurant located in State College. 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:
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Activity Cost Pool
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Activity Measure
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Serving a party of diners
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Number of parties served
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Serving a diner
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Number of diners served
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Serving drinks
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Number of drinks ordered
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A group of diners who ask to sit at the same table are 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 displayed below.
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Serving a Party
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Serving a Dinner
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Serving Drinks
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Total
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Total cost
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$3,100
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$25,600
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$22,800
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$51,500
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Total activity
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1,000 parties
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4,000 diners
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12,000 drinks
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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 $51,500 and that 4,000 diners had been served. Therefore, the average cost per diner was $12.88 ($51,500 ÷ 4,000 diners = $12.88 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 three diners who order four 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 (1) 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 three diners who order four drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.