Thoen Nuptial Bakery makes very elaborate wedding cakes to order.The company has an activity-based costing system with three activity cost pools.The activity rate for the Size-Related activity cost pool is $0.96 per guest.(The greater the number of guests, the larger the cake. )The activity rate for the Complexity-Related cost pool is $54.24 per tier.(Cakes with more tiers are more complex. )Finally, the activity rate for the Order-Related activity cost pool is $56.44 per order.(Each wedding involves one order for a cake. )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 Nie wedding cake to just break even?

Question

Thoen Nuptial Bakery makes very elaborate wedding cakes to order.The company has an activity-based costing system with three activity cost pools.The activity rate for the Size-Related activity cost pool is $0.96 per guest.(The greater the number of guests, the larger the cake. )The activity rate for the Complexity-Related cost pool is $54.24 per tier.(Cakes with more tiers are more complex. )Finally, the activity rate for the Order-Related activity cost pool is $56.44 per order.(Each wedding involves one order for a cake. )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 Nie wedding cake to just break even?

Quizplus · Accepted Answer

To calculate the total cost of the Nie wedding cake, we need to determine the cost of each activity cost pool for this order:

Size-Related activity cost pool:
Number of guests = 85
Activity rate = $0.96 per guest
Cost = 85 guests x $0.96 per guest = $81.60

Complexity-Related activity cost pool:
Number of tiers = 4
Activity rate = $54.24 per tier
Cost = 4 tiers x $54.24 per tier = $216.96

Order-Related activity cost pool:
Number of orders = 1
Activity rate = $56.44 per order
Cost = 1 order x $56.44 per order = $56.44

Total cost = $81.60 + $216.96 + $56.44 = $354.00

Therefore, the company would have to charge at least $354.00 for the Nie wedding cake to just break even. However, we need to add on the cost of purchased decorations, which are not included in the activity rates. Since we don't know the amount of purchased decorations for the Nie wedding cake, we cannot calculate the exact break-even price. The closest choice is B, $306.98, which is the cost of the activity cost pools without decorations.

Thoen Nuptial Bakery Makes Very Elaborate Wedding Cakes to Order