Question

Onassis Catering is a Greek company that provides passenger and crew meals to airlines operating out of two international airports in Athens and Corfu. The operations at the two airports are managed separately, and top management believes that there may be benefits to greater sharing of information between the two operations. To better compare the two operations, an ABC system has been designed with the active participation of the managers at both airports. The ABC system is based on the following activity cost pools and activity measures:
Activity Cost Pool Activity Measure
Meal preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of meals
Flight-related activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of flights
Customer service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of customers
Other (costs of idle capacity and organization-sustaining costs). . . . . . . . . . . NA
The operation at Athens International Airport (AIA) serves 1 million meals annually on 5,000 flights for 10 different airlines. (Each airline is considered one customer.) The annual cost of running the AIA airport operation, excluding only the costs of raw materials for meals, totals €3,675,000. Note : The currency in Greece is the euro, denoted by €.
Annual Cost of the AIA Operation
Cooks and delivery personnel wages . . . . . . . . . . . . . €3,000,000
Kitchen supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500
Chef salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000
Equipment depreciation. . . . . . . . . . . . . . . . . . . . . . . 75,000
Administrative wages and salaries . . . . . . . . . . . . . . . 187,500
Building costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . €3,675,000
To help determine the activity rates, employees were interviewed and asked how they divided their time among the four major activities. The results of employee interviews at AIA are displayed below:
Required:
1. Perform the first-stage allocation of costs to the activity cost pools.
2. Compute the activity rates for the activity cost pools. Do not round off.
3. The Corfu operation has already concluded its ABC study and has reported the following activity rates: 2.48 per meal for meal preparation; 144.50 per flight for flight-related activities; and 12,000 for customer service. Comparing the activity rates for the AIA operation you computed in (2) above to the activity rates for Corfu, do you have any suggestions for the top management of Onassis Catering?


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  • CreatedJuly 08, 2015
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