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Exercise 6-15 (30 minutes)
1. The first step is to determine the activity rates:
Activity Cost Pools
(a)
Total Cost
(b)
Total Activity
(a) ÷ (b)
Activity Rate
Serving parties .......
$12,000
5,000
parties
$2.40
per party
Serving diners ........
$90,000
12,000
diners
$7.50
per diner
Serving drinks ........
$26,000
10,000
drinks
$2.60
per drink
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Serving parties .......
$2.40
per party
1
party
$ 2.40
Serving diners ........
$7.50
per diner
4
diners
30.00
Serving drinks ........
$2.60
per drink
3
drinks
7.80
Total .....................
$40.20
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Serving parties .......
$2.40
per party
1
party
$ 2.40
Serving diners ........
$7.50
per diner
2
diners
15.00
Serving drinks ........
$2.60
per drink
0
drinks
0
Total .....................
$17.40
c. Party of 1 person who orders 2 drinks:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Serving parties .......
$2.40
per party
1
party
$ 2.40
Serving diners ........
$7.50
per diner
1
diner
7.50
Serving drinks ........
$2.60
per drink
2
drinks
5.20
Total .....................
$15.10
Exercise 6-15 (continued)
2. The average cost per diner for each party can be computed by dividing
the total cost of the party by the number of diners in the party as
follows:
a. $40.20 ÷ 4 diners = $10.05 per diner
b. $17.40 ÷ 2 diners = $8.70 per diner
diners in the party increases. With only one diner, the cost is $2.40.
With two diners, the average cost per diner is cut in half to $1.20. With
six diners, the average cost per diner would be only $0.40. And so on.
Second, the average cost per diner differs also because of the
differences in the number of drinks ordered by the diners. If a party
are excluded from the computations in the activity-based costing
system. Second, the $15 per diner figure does not recognize differences
in the diners’ demands on resources. It does not recognize that some
diners order more drinks than others, nor does it recognize that there
are some economies of scale in serving larger parties. (The batch-level
