Question
Svens Cookhouse is a popular restaurant located on Lake Union in Seattle. The owner of the restaurant has been trying to better understand costs at
Svens Cookhouse is a popular restaurant located on Lake Union in Seattle. 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. She then completed the first-stage allocations of costs to the activity cost pools, using data from last months operations. The results appear below: |
Activity Cost Pool | Activity Measure | Total Cost | Total Activity | ||
Serving a party of diners | Number of parties served | $ | 19,470 | 5,900 | parties |
Serving a diner | Number of diners served | $ | 110,110 | 12,100 | diners |
Serving a drink | Number of drinks ordered | $ | 36,750 | 10,500 | 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 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. |
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