Question:
Activity-Based Costing in a Nonmanufacturing Environment
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 four 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:
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Activities (and cost drivers)
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Afternoon Picnic
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Formal Dinner
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Advertising (parties)
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$80 per party
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$80 per party
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Planning (parties)
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$60 per party
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$100 per party
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Renting equipment
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$40 per party plus
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$60 per party plus
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(parties, guests)
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$8 per guest
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$16 per guest
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Obtaining insurance (parties)
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$160 per party
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$320 per party
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Serving (parties, servers)
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$40 per server per party
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$60 per server per party
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Preparing food (guests)
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$16 per guest
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$24 per guest
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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?