Question

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) $ 89 per party $ 89 per party Planning (parties) $ 90 per party $ 134 per party Renting equipment $ 51 per party plus $ 77 per party plus (parties, guests) $ 10 per guest $ 20 per guest Obtaining insurance (parties) $ 155 per party $ 430 per party Serving (parties, servers) $ 58 per server per party $ 79 per server per party Preparing food (guests) $ 19 per guest $ 27 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.

Answer 1

a. $1,042

b. $1,864

Explanation:

a. The computation of cost of a 20-guest afternoon picnic is shown below:-

Particulars Amount

Advertising $89 ($89 × 1 per party)

Add: Renting equipment $251 ($51 × 1 per party) + ($10 × 20 guests)

Add: Planning $90 ($90 × 1 per party)

Add: Obtaining insurance $155 ($155 × 1 per party)

Add: Preparing foods $320 ($19 × 20 per party)

Add: Serving $140 ($58 × 5 servers)

Total cost of afternoon picnic $1,042

b. The computation of cost of a 20-guest afternoon picnic is shown below:-

Particulars Amount

Advertising $89 ($89 × 1 per party)

Add: Planning $134 ($134 × 1 per party)

Add: Renting equipment $277 ($77 × 1 per party) + ($10 × 20 guests)

Add: Obtaining insurance $430 ($430 × 1 per party)

Add: Serving $395 ($79 × 5 servers)

Add: Preparing foods $540 ($27 × 20 guests)

Total cost of evening formal dinner $1,864