Question

Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages and salaries Other expenses Total $159,000 103,000 $262,000 Distribution of resource consumption: Activity Cost Pools Making Bouquets 50% 25% Wages and salaries Other expenses Delivery 35% 45% Other 15% 30% Total 100% 100% The "Other" activity cost pool consists of the costs of Idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Making bouquets Delivery Activity 40,325 bouquets 10, 100 deliveries What would be the total overhead cost per delivery according to the activity based costing system? In other words, what would be the overall activity rate for the deliveries activity cost pool? (Round to the nearest whole cent.)

Answer 1

First we need to allocate the cost in given ratio's

Overhead Cost	Making Bouqutes	Delivery	Other
Wages & Salaries	79,500	55,650	23,850
	(159,000 * 50%)	(159,000 * 35%)	(159,000 * 15%)
Other Expenses	25,750	46,350	30,900
	(103000 * 25%)	(103000 * 45%)	(103000 * 30%)
Total	105,250	102,000	54,750

Now the total cost computed for Delivery as an activity will be recovered from total no. of deliveries made to calculate the overall activity rate for the deliveries activity cost pool.

Overall activity rate for the deliveries activity cost pool = Total Cost of Delivery Activity / No. of Deliveries

= 102000/ 10100

= 10.099

= $10.10 ( on rounding off)