Question

33. 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 vear 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 50,000 500,000 1,500 450,000 Mixing Testing Production information for Slime is as follows: Denartment Expected use of Driver Ordering and Receiving 1,600 Mixing 30,000 Testing 1,000 Compute the amount of overhead assigned to Slime. a. $675,000 b. $822,617 c. $920,000 d. $1,012,500

Answer 1

Correct answer------------(C ) $920,000

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Ordering & receiving	Number of order	$ 400,000	2000	$          200.00	Per order
Mixing	Number of Hour	$ 500,000	50000	$             10.00	Per Hour
Testing	Number of test	$ 450,000	1500	$          300.00	Per test

.

Cost assigned to Slime
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Ordering & receiving	$        200.00	1,600.00	$ 320,000
Mixing	$           10.00	30,000.00	$ 300,000
Testing	$        300.00	1,000.00	$ 300,000
Total Overheads assigned			$           920,000.00