Feri Corporation makes a single product. A fire resistant commercial filling cabinet that it sells to office furniture distributors. The company has simple ABC system that it use for internal decision making. The company has two overheads departments whose costs are listed below; Manufacturing Over head $ 500,000 Selling & Admin overhead $ 300,000 Total overhead Costs $ 800,000 The company ABC’s system has the following activity cost pools and activity measures; Activity Costs Pool Activity Measures Assembling Units……………………… Number of Units Processing Order ……………………… Number of Orders Supporting Customer …………………. Number of Customers Others…………………………………. Not applicable Costs assigned to the “others” activity cost pool have no activity measures; they consist of the costs of unused capacity and organization - sustaining cost- neither of which are assigned to products. Orders or customers. The company distribute the cost of manufacturing overhead and selling admin overhead to the activity cost pools based on employees interviews, the results of which are reported below: Distribution of Resource Consumption Across Activity Cost pools Assembling Units Processing Orders Supporting Customers Others Total Manufacturing Overhead 50% 35% 05% 10% 100% Selling & Admin overhead 10% 45% 25% 20% 100% Total Activity 1000 units 250 orders 100 customers Required Perform the 1st stage allocation of overhead costs to the activity cost pools. Compute the activity rates for the activity costs pools. Office mart is one of ferris corporation’s customer, last year office mart ordered filling cabinets four different times , office mart ordered a total of 100 filing cabinets during the years, overhead cost of these, 100 units and five orders.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Question,
Feri Corporation makes a single product. A fire resistant commercial filling cabinet that it sells to office furniture distributors. The company has simple ABC system that it use for internal decision making. The company has two overheads departments whose costs are listed below;
Manufacturing Over head $ 500,000
Selling & Admin overhead $ 300,000
Total overhead Costs $ 800,000
The company ABC’s system has the following activity cost pools and activity measures;
Activity Costs Pool Activity Measures
Assembling Units……………………… Number of Units
Processing Order ……………………… Number of Orders
Supporting Customer …………………. Number of Customers
Others…………………………………. Not applicable
Costs assigned to the “others” activity cost pool have no activity measures; they consist of the costs of unused capacity and organization - sustaining cost- neither of which are assigned to products. Orders or customers.
The company distribute the cost of manufacturing overhead and selling admin overhead to the activity cost pools based on employees interviews, the results of which are reported below:
Distribution of Resource Consumption Across Activity Cost pools
|
|
Assembling Units |
Processing Orders |
Supporting Customers |
Others |
Total |
|
Manufacturing Overhead |
50% |
35% |
05% |
10% |
100% |
|
Selling & Admin overhead |
10% |
45% |
25% |
20% |
100% |
|
Total Activity |
1000 units |
250 orders |
100 customers |
|
|
Required
- Perform the 1st stage allocation of overhead costs to the activity cost pools.
- Compute the activity rates for the activity costs pools.
- Office mart is one of ferris corporation’s customer, last year office mart ordered filling cabinets four different times , office mart ordered a total of 100 filing cabinets during the years, overhead cost of these, 100 units and five orders.
- The selling price of a filling cabinet $ 595, the cost of direct materials is $ 180 per filing cabinet, And direct labour is $ 50 per filling cabinet what is the product margin on the 100 filling cabinets ordered by office mart? How profitable is office mart as a customer?
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