Tyler’s Consulting Company has purchased a new $15,000 copier. This overhead cos

Question

Tyler’s Consulting Company has purchased a new $15,000 copier. This overhead cost will be shared by the purchasing, accounting, and information technology departments since those are the only departments which will be able to access the machine. The company has decided to allocate the cost based on the number of copies made by each department. The copier is estimated to provide 1 million copies over its life. Each division has estimated the number of copies which will be made over the life of the copier.

Purchasing                 350,000
Accounting                 200,000
Information Tech       425,000

Note: Cost allocations are computed to 4 significant digits. Resulting values are rounded to the whole dollar.

If the purchasing department makes 140,260 copies this year, what will be their allocated overhead?

Explanation / Answer

Sure, the copier cost $15,000 and it is supposed to provide 1,000,000 copies. If we allocate the costs based on the number of copies made by each department it will be 15,000/1,000,000 or $0.015 per copy. Since the purchasing department made 140,260 copies this year, the departments allocated overhead will be 140,260*$0.015= $2,103.90. We were told to round this to the nearest dollar so it will be $2,104. Hope that's sufficient.

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