Pretend you are going to throw some sort of event, such as a party for your friends.
Question:
Pretend you are going to throw some sort of event, such as a party for your friends. However, being the entrepreneur that you are, you want to at least cover your costs. You know how much the direct materials will be (sandwiches, pizza, soda, etc.) and let's say that comes out to $10 per person. You also know how much the direct labor will be, which let's say is the DJ that will allocate to be $5 per person. The last piece is the (factory) overhead. Explain in greater detail than last week, what the costs of your venue will be, how much you expect it to cost in total, and then importantly, what will be the activity driver to allocate your (factory) overhead costs. And to make it slightly more difficult, I will say that you cannot use the number of party guests as the activity base to allocate the overhead costs. So use your imagination to figure out how you would allocate the costs, and therefore, how much is the minimum at which you will need to charge your guests. Remember that the purpose of choosing a good activity driver, is because you want the best and most accurate way to allocate the costs.
