Question

Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her catered parties. Each party is limited to 20 guests and requires 4 people to serve and clean up. Cathy offers two types of parties—an afternoon picnic and an evening formal dinner. The breakdown of the costs follows.

 

Activities (and cost drivers)

Afternoon Picnic

Formal Dinner

Advertising (parties)

$

119

per party

$

119

per party

Planning (parties)

$

98

per party

$

134

per party

Renting equipment (parties, guests)

$

53

per party plus $14 per guest

$

79

per party plus $23 per guest

Obtaining insurance (parties)

$

230

per party

$

370

per party

Serving (parties, servers)

$

59

per server per party

$

67

per server per party

Preparing food (guests)

$

20

per guest

$

34

per guest

 

 

Per party costs do not vary with the number of guests.

 

Required:

  1. Compute the cost of a 20-guest afternoon picnic.
  2. Compute the cost of a 20-guest evening formal dinner.
  3. How much should Cathy charge for each guest for each type of party if she wants to cover her costs?

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Activity Based Costing

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