ABC Pizza currently has three types of lunch customers: Sit-down, Delivery, and Schools. The Sit-down customers are
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Question:
ABC Pizza currently has three types of lunch customers: Sit-down, Delivery, and Schools. The Sit-down customers are served in the restaurant, while the Delivery and School customers have their pizza delivered. A typical week has the following financial information:
Sit-Down | Delivery | Schools | |
Number of pizzas | 200 | 100 | 50 |
Variable cost per pizza | 7 | 7 | 4 |
Number of deliveries | 0 | 59 | 1 |
Item | Total Cost in$ | Notes |
Deliveries | 600 | Each delivery costs the same amount, regardless of distance or number delivered |
Kitchen | 3,818 | Costs for the kitchen are largely driven by pizza variable costs |
Eat-in area | 1,400 | This cost is only related to Sit-down customers |
Total | 5,818 | This represents total overhead costs |
Required (each of these are separate situations)
- Assume that ABC does NOT use activity based costing, and instead evenly allocates all costs to each type of pizza. What is the total selling price per pizza if ABC has a mark-up of 20% (don’t forget to include variable costs).
- Assume that ABC uses activity based costing, and each customer type will be charged a different price per pizza. What is the total selling price per pizza for each type of customer (Sit-down, Delivery, and Schools) if ABC has a mark-up of 20% (don’t forget to include variable costs).
- Compare the results in A and B. Which customers will likely be happy/unhappy with Activity Based Costing used to determine the price per pizza? What will eventually happen if ABC is not adopted?
Related Book For
Complete Business Statistics
ISBN: 9780077239695
7th Edition
Authors: Amir Aczel, Jayavel Sounderpandian
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