Overall average cost - find the average cost

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Reference no: EM1311220

Determine the average cost from the given data.

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	$12,000	5,000 drinks
Serving a diner	Number of diners served	$90,000	12,000 drinks
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 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:

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?

Reference no: EM1311220

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