Activity Based Costing Example / Problem:
Learning Objectives: 1. Perform the first stage allocation of overhead costs to the activity cost pools. 2. Compute activity rates for the activity cost pools. 3. Construct a table showing the overhead costs of units and four orders.
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 below: |Manufacturing overhead |$5,00,000 |
|Selling and administrative overhead |$300,000 |
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|Total overhead costs |$8,00,000 |

The company's activity based costing system has the following activity cost pools and activity measures: |Activity Cost Pool |Activity Measures |
|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 the costs of unused capacity and organization-sustaining costs - neither of which are assigned to products, orders or customers.
Ferris Corporation distributes the costs of manufacturing overhead and of selling and administrative overhead to the activity cost pools based on employee interviews,