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 5 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) $ 125 per party $ 125 per party Planning (parties) $ 50 per party $ 144 per party Renting equipment (parties, guests) $ 55 per party plus $13 per guest $ 77 per party plus $24 per guest Obtaining insurance (parties) $ 230 per party $ 375 per party Serving (parties, servers) $ 40 per server per party $ 66 per server per party Preparing food (guests) $ 22 per guest $ 35 per guest Per party costs do not vary with the number of guests. Required: a. Compute the cost of a 20-guest afternoon picnic. b. Compute the cost of a 20-guest evening formal dinner. c. How much should Cathy charge for each guest for each type of party if she wants to cover her costs?
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 5 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) $ 125 per party $ 125 per party Planning (parties) $ 50 per party $ 144 per party Renting equipment (parties, guests) $ 55 per party plus $13 per guest $ 77 per party plus $24 per guest Obtaining insurance (parties) $ 230 per party $ 375 per party Serving (parties, servers) $ 40 per server per party $ 66 per server per party Preparing food (guests) $ 22 per guest $ 35 per guest Per party costs do not vary with the number of guests. Required: a. Compute the cost of a 20-guest afternoon picnic. b. Compute the cost of a 20-guest evening formal dinner. c. How much should Cathy charge for each guest for each type of party if she wants to cover her 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
Problem 5BE: Activity-based costing for a service business Sterling Hotel uses activity-based costing to...
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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 5 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) | $ | 125 | per party | $ | 125 | per party |
| Planning (parties) | $ | 50 | per party | $ | 144 | per party |
| Renting equipment (parties, guests) | $ | 55 | per party plus $13 per guest | $ | 77 | per party plus $24 per guest |
| Obtaining insurance (parties) | $ | 230 | per party | $ | 375 | per party |
| Serving (parties, servers) | $ | 40 | per server per party | $ | 66 | per server per party |
| Preparing food (guests) | $ | 22 | per guest | $ | 35 | per guest |
Per party costs do not vary with the number of guests.
Required:
a. Compute the cost of a 20-guest afternoon picnic.
b. Compute the cost of a 20-guest evening formal dinner.
c. How much should Cathy charge for each guest for each type of party if she wants to cover her costs?
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