A company incurs $1,800,000 of overhead each year in three departments: Processi

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 SludgeExpected Use of Driver Processing 300 500 Packaging 120,000 80,000 Testing 1,600 400 The amount of overhead assigned to Sludge is what?

Explanation / Answer

SLUDGE Driver Processing = [500/(500+300)]*750000 = 468750 Packaging = [80000/(120000+80000)]*750000 = 300000 Testing = [400/(1600+400)]*300000 = 60000 TOTAL O/Hs = 468750 + 300000 + 60000 = $828750

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