Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system: The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.Data concerning two recent orders appear below:
Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even?

Question

Nissley Wedding Fantasy Corporation makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:  The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.Data concerning two recent orders appear below:
 Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Tijerina wedding cake to just break even?

Quizplus · Accepted Answer

To determine the cost of the Tijerina wedding cake, we need to calculate the total cost of producing that cake. Using the activity rates provided in the table, we can calculate the cost of each activity for this particular order:

Size-related activity cost: 5 (number of planned guests) x $14.00 (activity rate per planned guest) = $70.00
Complexity-related activity cost: 4 (number of tiers) x $40.00 (activity rate per tier) = $160.00
Order-related cost: 1 (number of orders) x $100.00 (activity rate per order) = $100.00
Total cost = $70.00 + $160.00 + $100.00 = $330.00

Therefore, the company would need to charge at least $330.00 for the Tijerina wedding cake to just break even. The closest answer choice is B, $222.92, which is incorrect. The correct answer is B, $330.00.

Nissley Wedding Fantasy Corporation Makes Very Elaborate Wedding Cakes to Order