Jordan's Lakeside is a popular restaurant located on Lake Washington in Seattle. 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 are 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.
Serving a Party Serving a Diner Serving a Drink Total
Total cost $ 32,000 $ 212,000 $ 74,000 $ 318,000
Total activity 6,000 parties 15,000 dinners 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 $318,000 and that 15,000 diners had been served. Therefore, the average cost per diner was $21.20 ($318,000 ÷ 15,000 diners = $21.20 per diner).
Requirement 1:
Compute the activity rates for each of the three activities. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Cost per unit of activity
Serving a Party $ per party
Serving a Diner $ per diner
Serving Drinks $ per drink
Requirement 2:
According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
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.
Total
a. Party of four diners who order three drinks $
b. Party of two diners who order no drinks $
c. Party of one diner who orders two drinks $
Requirement 3:
Convert the total costs you computed in Requirement 1 above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)
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.
Average cost
a. Party of four diners who order three drinks $ per diner
b. Party of two diners who order no drinks $ per diner
c. Party of one diner who orders two drinks $ per diner