Gino's Restaurant is a popular restaurant of 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 Dinner |
Serving Drinks |
Total |
| Total cost |
$ 34,000 |
|
$ 205,000 |
|
$ 68,000 |
|
$ 307,000 |
| Total activity |
6,000 |
parties |
15,000 |
diners |
10,000 |
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 $307,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $20.47 ($307,000 ÷ 15,000 diners = $20.47 per diner).
Compute the activity rates for each of the three activities.
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.
Convert the total costs you computed in Requirement 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.