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 calculate the total cost for the Tijerina wedding cake, we need to use the activity rates and the information provided in the table:

- Size-related activity cost pool: The Tijerina wedding cake has 250 planned guests, so the activity is 250. The activity rate is $0.96 per planned guest. Therefore, the cost for this cost pool is 250 x $0.96 = $240.
- Complexity-related activity cost pool: The Tijerina wedding cake has 4 tiers, so the activity is 4. The activity rate is $20 per tier. Therefore, the cost for this cost pool is 4 x $20 = $80.
- Order-related cost pool: There is one order for the Tijerina wedding cake, so the activity is 1. The activity rate is $150 per order. Therefore, the cost for this cost pool is 1 x $150 = $150.

Adding up the costs for all three cost pools, we get the total cost for the Tijerina wedding cake:

Total cost = $240 + $80 + $150 = $470

To break even, the company needs to charge the Tijerina wedding cake at least $470. Therefore, the answer is B) $215.13. None of the other answer choices are correct.

Nissley Wedding Fantasy Corporation Makes Very Elaborate Wedding Cakes to Order