Suppose the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to

Suppose the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to

Lifsey Wedding Fantasy Company 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:

Activity Cost Pools

Activity Rate

Size-related

$0.94 per guest

Complexity-related

$31.62 per tier

Order-related

$55.70 per order

  • 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 don’t include the costs of purchased decorations, such as
    miniature statues and wedding bells, which are accounted for separately.

Data concerning two recent orders
are listed here:


Pyburn
Wedding

Smith
Wedding

Number of reception guests

72

189

Number of tiers on the cake

4

5

Cost of purchased decorations for
cake

$29.92

$68.75

Suppose the company decides that the
present activity-based costing system is too complex and that all costs (except
for the costs of purchased decorations) should be allocated on the basis of the
number of guests. In that event, what would you expect to happen to the costs
of cakes?


Price: £ 45

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