Toma 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 $1.14 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $31.86 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $59.66 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 Zedian wedding cake to just break even?

Question

Toma 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 $1.14 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $31.86 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $59.66 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 Zedian wedding cake to just break even?

Quizplus · Accepted Answer

To calculate the cost of the Zedian wedding cake, we need to add up the costs for each activity cost pool:

Size-Related cost: $1.14 x 175 guests = $199.50
Complexity-Related cost: $31.86 x 5 tiers = $159.30
Order-Related cost: $59.66 x 1 order = $59.66

Total activity cost = $199.50 + $159.30 + $59.66 = $418.46

This activity cost includes the cost of raw ingredients but not the cost of purchased decorations. Since the question indicates that all costs listed above are avoidable costs if an order is turned down, we can assume that the $418.46 is the total cost of producing the cake. Therefore, the amount that Toma Nuptial Bakery would have to charge to just break even is $418.46, which is closest to option D ($204.63).

Toma Nuptial Bakery Makes Very Elaborate Wedding Cakes to Order