Question

Meade Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $0.96 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $28.92 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $78.19 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.

Data concerning two recent orders appear below:
Ruiz Wedding Selvin Wedding
Number of reception guests 73 254
Number of tiers on the cake 6 5
Cost of purchased decorations for cake $24.65 $79.95
Required:
1. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Ruiz wedding cake to just break even?

Answer 1

$277.32

Step-by-step explanation:

The computation of the company charged for break even is shown below:

Particulars Ruiz Wedding Rate Amount

Number of reception guests 73 $0.96 $0.96

Number of tiers on the cake 6 $28.92 $173.52

Number of orders 1 $78.19 $78.19

Number of decoration 1 $24.65 $24.65

Total $277.32

We simply multiplied the ruiz wedding with the rate so that the final amount could come