Q1) Sven's Cookhouse is popular restaurant located on Lake Union in Seattle. Owner of restaurant has been trying to better understand costs at restaurant and has hired student intern to conduct activity-based costing study. Intern, in consultation with owner, recognized three major activities. She then completed first-stage allocations of costs to activity cost pools, using data from last month's operations. Results appear below:
| Activity Cost Pool |
Activity Measure |
Total Cost |
Total Activity |
| Serving a party of diners |
Number of parties served |
$12,000 |
5,000 drinks |
| Serving a diner |
Number of diners served |
$90,000 |
12,000 drinks |
| Serving a drink |
Number of drinks ordered |
$26,000 |
10,000 drinks |
Above costs include all of costs of restaurant except for organization-sustaining costs like rent, property taxes, and top-management salaries. Group of diners who ask to sit at same table are counted as a party. Some costs, like costs of cleaning linen, are same whether one person is at table or table is full. Other costs, like washing dishes, depend on the number of diners served.
Previous to activity-based costing study, owner knew very little about costs of the restaurant. He knew that total cost for month (including organization-sustaining costs) was $180,000 and that 12,000 diners had been served. Hence, the average cost per diner was $15.
Required:
Convert total costs you calculated to costs per diner. Average cost per diner for serving each of given parties?
a. A party of four diners who three drinks in total.
b. A party of four diners who do not order any drinks.
c. A lone diner who orders two drinks.