Jordan’s Lakeside is a popular restaurant located on Lake Muskoka in Ontario. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an ABC study. The intern, in consultation with the owner, identified the following major activities:
Activity Cost Pool Activity Measure
Serving a party of diners………………….Number of parties served
Serving a diner…………………………………Number of diners served
Serving drinks………………………………….Number of drinks ordered
One or more diners who ask to sit at a 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.
Data concerning these activities are displayed below.
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 was $254,000 and that 17,500 diners had been served. Therefore, the average cost per diner was approximately $14.51 (= $254,000 ÷ 17,500 diners).
Required:
1. Compute the activity rate for each of the three activities.
2. According to the ABC system, what is the total cost of serving each of the following parties of diners?
a. A party of four diners who order three drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
3. Convert the total costs you computed in part (2) to costs per diner. In other words, what is the average cost per diner for serving each of the following parties of diners?
a. A party of four diners who order three drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
4. Why do the costs per diner for the three different parties differ from each other and from the overall average cost of $14.51 per diner?
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