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cost object, key activities, and related cost drivers

Activity-based costing (ABC) is a system that gathers overhead costs for organization activities, and then assigns those costs back to products, services, departments, sales territories or other cost objects. La Villa Roma Pizza wants to determine the cost of delivering pizzas to clients. The company is considering whether to charge a small fee for deliveries.

Explain the cost object, key activities, and related cost drivers for La Villa Roma's activity-based cost study. When dealing with activity-based costing, what types of ethical decisions might you face?

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La Villa Roma's activity based cost study:

The cost object in the case of La Villa Roma's activity based study is the final product being deliver to the client, ie., the Pizza being delivered to the client.

The key activities concerned with this final cost object are:

1) Procurement and storage of raw materials/ ingredients for preparing the pizza.

2) Taking the orders from the customers over the phone/ over the counter.

3) Preparation of the Pizza which includes steps such as mixing the flour to make dough and then finally the base, cutting the toppings such as vegetables and sausages, spreading the toppings over the bread, putting the base with the topping in the oven.

4) Delivering the Pizza to the customer.

5) Marketing and advertising related activities such as placing ads in newspapers, distributing flyers, advertising over the internet, etc.

6) General Administration work such as cleaning, minor repairs, etc.

7) Accounting related tasks.

Cost Drivers:

The direct costs associated with ...

Solution Summary

Explain the cost object, key activities, and related cost drivers for La Villa Roma's activity-based cost study. When dealing with activity-based costing, what types of ethical decisions might you face?

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