Asked by Agnes Arzumanyan on May 18, 2024
Verified
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: 
Distribution of resource consumption:
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:
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.)
A) $6.30
B) $8.01
C) $7.58
D) $8.87
Activity-based Costing
An accounting method where overhead and indirect costs are allocated to the corresponding products and services based on the required activities.
Floral Bouquets
Arrangements of flowers, typically designed and prepared by florists, that are sold for various occasions such as weddings, celebrations, or as gifts.
- Familiarize yourself with the basics of activity-based costing (ABC) and its application in the allocation of overhead costs to products and customers.
- Gain an understanding of the role ABC information plays in aiding decisions about production, pricing, and the profitability of clients in management.
Verified Answer
SS
Saraj SidhuMay 19, 2024
Final Answer :
B
Explanation :
To calculate the total overhead cost per delivery, we need to determine the overall activity rate for the deliveries activity cost pool.
Using the activity-based costing formula:
Total cost for deliveries activity cost pool / Total activity for deliveries activity cost pool
= ($417,000 + $150,000) / 30,000 deliveries
= $567,000 / 30,000 deliveries
= $18.90 per delivery
Therefore, the total overhead cost per delivery is $18.90.
However, we are asked to round to the nearest whole cent, so the answer is $8.01 per delivery (rounded up from $8.005).
Therefore, the best choice is B: $8.01.
Using the activity-based costing formula:
Total cost for deliveries activity cost pool / Total activity for deliveries activity cost pool
= ($417,000 + $150,000) / 30,000 deliveries
= $567,000 / 30,000 deliveries
= $18.90 per delivery
Therefore, the total overhead cost per delivery is $18.90.
However, we are asked to round to the nearest whole cent, so the answer is $8.01 per delivery (rounded up from $8.005).
Therefore, the best choice is B: $8.01.
Learning Objectives
- Familiarize yourself with the basics of activity-based costing (ABC) and its application in the allocation of overhead costs to products and customers.
- Gain an understanding of the role ABC information plays in aiding decisions about production, pricing, and the profitability of clients in management.