Question

Ferris Corporation makes a single product—a fire-resistant commercial filing cabinet—that it sells to office furniture distributors....

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 as follows:

Manufacturing overhead

$500,000

Selling and administrative overhead

300,000

Total overhead costs

$800,000

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

Activity Cost Pool

Activity Measure

Assembling units

Number of units

Processing orders

Number of orders

Supporting customers

Number of customers

Other

Not applicable

Costs assigned to the “Other” activity cost pool have no activity measure; they consist of organization-sustaining costs. Ferris Corporation distributes the costs of manufacturing overhead and 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

Assembling
Units

Processing
Orders

Supporting
Customers

Other

Total

Manufacturing overhead

50%

35%

5%

10%

100%

Selling and administrative overhead

10%

45%

25%

20%

100%

Total activity

1,000 units

250 orders

100 customers

Please download the Excel worksheet from Blackboard. Required:

  1. Perform the 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?

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