Class activity: Activity$-$Based Costing: A Tool to Aid Decision Making

Module: ACC $202$ Managerial Accounting

Chapter: $5$

Ferris Corporation makes a single product$-$a fire$-$resistant commercial filing cabinet$-$that it

sells to office furniture distributors. The company has a simple ABC system that it uses for

internal decision making. The company has two overhead departments whose costs are listed

on the following page:

Manufacturing overhead $.................................$

Selling and administrative overhead $................$

Total overhead costs $........................................$

The company's ABC system has the following activity cost pools and activity measures:

Activity Cost Pool

Assembling units $.....................$

Processing orders $....................$

Supporting customers $............$

Other $.......................................$

Activity Measure

Number of units

Number of orders

Number of customers

Not applicable

Costs assigned to the "Other" activity cost pool have no activity measure; they consist of the

costs of unused capacity and organization$-$sustaining costs $-$ neither of which are assigned to

orders, customers, or the product.

Ferris Corporation distributes the costs of manufacturing overhead and of selling and

administrative overhead to the activity cost pools based on employee interviews, the results

of which are reported below:

Distribution of Resource Consumption Across Activity Cost Pools

Required:

Perform the first$-$stage allocation of overhead costs to the activity cost pools.

Compute activity rates for the activity cost pools.

OfficeMart is one of Ferris Corporation's customers. Last year, OfficeMart ordered

filing cabinets four different times. OfficeMart ordered a total of $80$ filing cabinets

during the year. Construct a table showing the overhead costs attributable to

OfficeMart.

The selling price of a filing cabinet is $$595.$ The cost of direct materials is $$180$ per

filing cabinet, and direct labor is $$50$ per filing cabinet. What is the customer margin

of OfficeMart.