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

We need to figure out what portion will be allocated to the Purchasing Department Total Copies for each department; 350,000 + 200,000 + 425,000 = 975,000 Purchasing Department's Portion = 350,000 / 975,000 = 0.359 = 35.9% Purchasing's Portion of Total Cost of Copier = 15,000 * 0.359 = $3584.62 Purchasing's Year 1 Usage as a Percentage of Total over Life of Copier = Total Cost To Department * Percentage of Total Copies Made in Year 1 = 3584.62 * (140,260 / 350,000) = 2157.85 Rounded to the nearest Dollar = $2158

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