A company incurs $1,800,000 of overhead each year in three departments: Processi
ID: 2365996 • Letter: A
Question
A company incurs $1,800,000 of overhead each year in three departments: Processing, Packaging, and Testing. The company performs 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year in producing 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available:
Department
Expected Use of Driver
Cost
Processing
800
$750,000
Packaging
200,000
750,000
Testing
2,000
300,000
Production information for the two products is as follows:
Department
Oil
Expected Use of Driver
Sludge
Expected Use of Driver
Processing
300
500
Packaging
120,000
80,000
Testing
1,600
400
The amount of overhead assigned to Oil is what?
Department
Expected Use of Driver
Cost
Processing
800
$750,000
Packaging
200,000
750,000
Testing
2,000
300,000
Production information for the two products is as follows:
Department
Oil
Expected Use of Driver
Sludge
Expected Use of Driver
Processing
300
500
Packaging
120,000
80,000
Testing
1,600
400
The amount of overhead assigned to Oil is what?
Explanation / Answer
overhead for oil = processing + packaging + testing = (3/8)x750,000 + (12/20)x750,000 + (16/20)x300,000 = 281250+450000+240000 = $971,250 Ans
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