A company incurs $1,350,000 of overhead each year in three departments: Ordering

Question

A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available:
Department Expected use of Driver Cost
Ordering and Receiving 2,000 $400,000
Mixing 50,000 500,000
Testing 1,500 450,000

Production information for Goo is as follows:
Department Expected use of Driver
Ordering and Receiving 400
Mixing 20,000
Testing 500

Compute the amount of overhead assigned to Goo.
A) $337,500
B) $430,000
C) $527,382
D) $675,000

Explanation / Answer

Cost per driver:

Ordering and receving = 400000/2000 = $200 per ordering and receiving

Mixing = 500000/50000 = $10 per Mixing

Testing = 450000/1500 = $300 per Testing

Total Overheads Assigned to Goo:

Cost = No. of Drivers * Cost per driver

Ordering and receiving = 400*$200 = $80000

Mixing = 20000*$10 = $200000

Testing = 500*$300 = $150000

Total overheads = $430000

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