Calvin Co. produces 3 products:A1, B2, and C3. A1 requires 400 purchase orders,

Question

Calvin Co. produces 3 products:A1, B2, and C3. A1 requires 400 purchase orders, B2 requires 600purchase orders, and C3 requires 1,000 purchase orders. Calvin hasidentified an ordering and receiving activity cost pool withallocated overhead of $120,000 for which the cost driver ispurchase orders. Direct labor hours used on each product are 50,000for A1, 40,000 for B2, and 110,000 for C3. How much ordering andreceiving overhead is assigned to each product?

A1 B2C3

a. $40,000 $40,000$40,000

b. $30,000 $24,000$66,000

c. $24,000 $36,000$60,000

d. $27,000 $30,000$63,000

Explanation / Answer

Answer Choice C. $ 24,000 , $ 36,000 , $ 60,000 Explanation                           A1          B2              C3 Purchase Order  400         600             1,000 The problem says overhead is allocated based on purchase orders (cost driver is P.O) Total Purchase orders = 400 + 600+ 1,000       =2,000 A1 120,000 * 400/2,000 =24,000 B2 120,000 * 600/2,000 =36,000 C3 120,000* 1,000/2,000 =60,000

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