Accounting

Al Yamama University
College of Business
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:
The company’s ABC system has the following activity cost pools and activity measures:
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:
Required:
1. Perform the first-stage allocation of overhead costs to the activity cost pools.
2. Compute activity rates for the activity cost pools.
3. 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.
4. 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.
Solution:
Al Yamama University
College of Business
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:
The company’s ABC system has the following activity cost pools and activity measures:
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:
Required:
1. Perform the first-stage allocation of overhead costs to the activity cost pools.
2. Compute activity rates for the activity cost pools.
3. 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.
4. 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.