Bombay Kitchen is a popular Indian restaurant located in a scenic setting in eastern Ontario.

The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a Carleton MBA student to conduct an activity-based costing (ABC) study. The student, in consultation with the owner, identified three major activities. Using data from last month's operations, the results from the first-stage allocations of costs to the activity cost pools are the following -

Activity Cost Pool Activity Measure		Total Cost	Total Activity
diners	Serving a party of Number of parties served		12,000 5,000 parties
Serving a diner	Number of diners served		90,000 12,000 diners
Serving a drink	Number of drinks ordered		26,000 10,000 drinks

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 ABC study, the owner knew very little about the costs of the restaurant. She 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 ABC system, what is the total cost of serving each of the following parties of diners?

1. A party of four diners that orders three drinks in total.
2. A party of two diners that does not order any drinks.
3. 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?

1. A party of four diners that orders three drinks in total.
2. A party of two diners that does not order any drinks.
3. 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 the $15 per diner?

We should note that the ABC system does not recognize all of the differences in diners' demands on resources. For example, the costs of preparing the various meals on the menu surely differ. It may or may not be worth the effort to build a more detailed ABC system that would take into account such nuances.