(Appendix 6A)Grogam Catering uses activity-based costing for its overhead costs.The company has provided the following data concerning the activity rates in its activity-based costing system: The number of meals served is the measure of activity for the Preparing Meals activity cost pool.The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 100 meals were served.The company catered the function for a fixed price of $21 per meal.The cost of the raw ingredients for the meals was $8.25 per meal.This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost;supplies and raw ingredients as a Green cost;and other expenses as a Red cost.
Suppose an action analysis report is prepared for the function mentioned above.What would be the "yellow margin" in the action analysis report? (Round to the nearest whole dollar. )
A)$635
B)$815
C)$710
D)$760

Question

(Appendix 6A)Grogam Catering uses activity-based costing for its overhead costs.The company has provided the following data concerning the activity rates in its activity-based costing system:  The number of meals served is the measure of activity for the Preparing Meals activity cost pool.The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool. Management would like to know whether the company made any money on a recent function at which 100 meals were served.The company catered the function for a fixed price of $21 per meal.The cost of the raw ingredients for the meals was $8.25 per meal.This cost is in addition to the costs of wages, supplies, and other expenses detailed above.
For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost;supplies and raw ingredients as a Green cost;and other expenses as a Red cost.
Suppose an action analysis report is prepared for the function mentioned above.What would be the "yellow margin" in the action analysis report? (Round to the nearest whole dollar. )
A)$635 
B)$815 
C)$710 
D)$760

Quizplus · Accepted Answer

Yellow margin represents the amount of revenue remaining after deducting all variable costs, including yellow costs(wages). The total variable cost per meal is $10.75 ($8.25 for raw ingredients and $2.50 for wages). 
Thus, the yellow margin per meal would be $10.25 ($21 - $10.75). 
For 100 meals, the total yellow margin would be $1,025 ($10.25 x 100). 
Rounding to the nearest whole dollar gives us $1,025 as the yellow margin, which is option A.

(Appendix 6A)Grogam Catering Uses Activity-Based Costing for Its Overhead Costs