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:

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?

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Activities (and cost drivers) Advertising (parties)...... Planning (parties) Renting equipment (parties, guests) Obtaining insurance..... (parties) Serving (parties, servers) Preparing food Afternoon Picnic $100 per party 75 per party 50 per party plus 10 per guest 200 per party 50 per server per party 20 per guest Formal Dinner $100 per party 125 per party 75 per party plus 20 per guest 400 per party 75 per server per party 30 per guest (guests)