QUESTION 2

ABC Pizza currently has three types of lunch customers: Sit-down, Delivery, and Schools. The Sit-down customers are served in the restaurant, while the Delivery and School customers have their pizza delivered. A typical week has the following financial information:

	Sit-Down	Delivery	Schools
Number of pizzas	200	100	50
Variable cost per pizza	7	7	4
Number of deliveries	0	59	1

Item	Total Cost in$	Notes
Deliveries	600	Each delivery costs the same amount, regardless of distance or number delivered
Kitchen	3,818	Costs for the kitchen are largely driven by pizza variable costs
Eat-in area	1,400	This cost is only related to Sit-down customers
Total	5,818	This represents total overhead costs

Required (each of these are separate situations)

Assume that ABC does NOT use activity based costing, and instead evenly allocates all costs to each type of pizza. What is the total selling price per pizza if ABC has a mark-up of 20% (dont forget to include variable costs).

Assume that ABC uses activity based costing, and each customer type will be charged a different price per pizza. What is the total selling price per pizza for each type of customer (Sit-down, Delivery, and Schools) if ABC has a mark-up of 20% (dont forget to include variable costs).

Compare the results in A and B. Which customers will likely be happy/unhappy with Activity Based Costing used to determine the price per pizza? What will eventually happen if ABC is not adopted?