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Action Analysis Report

Grisim Catering uses activity-based costing for its overhead costs. The company has provided the following data concerning the activity rates in its activity-based costing system:

Preparing Arranging
Activity Cost Pools Meals Functions
Wages 0.75 175.00
Supplies 0.50 280.00
Other expenses 0.35 130.00

The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The number of functions catered is used as the activity measure for the Arranging Functions activity cost pool.

Management would like to know whether the company made any money on a recent function at which 130 meals were served. The company catered the function for a fixed price of 11.00 per meal. The cost of the raw ingredients for the meals was 6.90 per meal. This cost is in addition to the costs of wages, supplies, and other expenses detailed above.

For the purposes of preparing action analyses, management has assigned ease of adjustment codes to the costs as follows: wages are classified as a Yellow cost; supplies and raw ingredients as a Green cost; and other expenses as a Red cost.
Reference: 8-19

Suppose an action analysis report is prepared for the function mentioned above. What would be the "red margin" in the action analysis report? (Round to the nearest whole dollar.)


Solution Preview

We have to find the total cost and compare it to the total income.
The total cost of a meal is
Wages ...

Solution Summary

The solution explains the calculation of red margin in an action analysis report