Stan's Cookhouse is a popular restaurant located in the centre of Birmingham. 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 three major activities. He then completed the first-stage allocation of costs to the activity cost pools, using data from last month's operations. The results appear below:

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes and top-management salaries. 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. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. He knew that the total cost for the month (including organization-sustaining costs) was £180,000 and that 12,000 diners had been served. Therefore, the average cost per diner was £15.

Required
1. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners?
(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.
2. Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties?
(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.
3. Why do the costs per diner for the three different parties differ from each other and from the overall average cost of £15.00 per diner?

Transcribed Image Text:

Activity cost pool Serving a party of diners Serving a diner Serving a drink Activity measure Number of parties served Number of diners served Number of drinks ordered Total cost £12,000 £90,000 £26,000 Total activity 5,000 parties 12,000 diners 10,000 drinks