Forrest Florist specialises 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:$\begin{array}{lrr}
\text { Wages and salaries } &
£ 70,000\
\text {Other expenses. } &£ 40,000\
\text {Total. } &£ 110,000
\end{array}$

Distribution of resource consumption:
The 'Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs.
The amount of activity for the year is as follows:$\begin{array}{lrr}
\text { Activity Cost Pool} & \text { Activity} \
\text { Making bouquets} & \text { 20,000 bouquets } \
\text { Delivery. } &\text {1,000 deliveries } &\
\end{array}$

- What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round your answer to the nearest whole pence.)

Question

Forrest Florist specialises 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:$\begin{array}{lrr}
  \text { Wages and salaries } &
£ 70,000\
 \text {Other expenses.  } &£ 40,000\
\text {Total.  } &£ 110,000 
\end{array}$

Distribution of resource consumption:
 The 'Other' activity cost pool consists of the costs of idle capacity and organisation-sustaining costs.
The amount of activity for the year is as follows:$\begin{array}{lrr}
  \text {  Activity Cost Pool} & \text {  Activity} \
 \text {  Making bouquets} & \text { 20,000 bouquets } \
 \text { Delivery. } &\text {1,000 deliveries  } &\
\end{array}$

- What would be the total overhead cost per bouquet according to the activity based costing system? In other words, what would be the overall activity rate for the making bouquets activity cost pool? (Round your answer to the nearest whole pence.)

Quizplus · Accepted Answer

To calculate the total overhead cost per bouquet, we need to first calculate the overall activity rate for the making bouquets activity cost pool. 
Total cost for making bouquets = £18,000
Total activity for making bouquets = 6,000 bouquets
Overall activity rate = Total cost / Total activity = £18,000 / 6,000 = £3 per bouquet
However, we also need to allocate the costs from the 'Other' activity cost pool to the making bouquets activity cost pool. The total cost for the 'Other' pool is £10,000, and the total activity for all cost pools is 12,000 machine-hours. Therefore, the overhead rate for the 'Other' cost pool is £0.83 per machine-hour. For the making bouquets activity cost pool, the machine-hours are 3,000 (the same as the number of setups). Therefore, the allocated cost from the 'Other' pool to making bouquets is £0.83 x 3,000 = £2,490. 
Total overhead cost per bouquet according to the activity-based costing system = £3 + (£2,490 / 6,000) = £2.83. 
Therefore, the best choice is B.

Forrest Florist Specialises in Large Floral Bouquets for Hotels and Other