A company incurs $4,050,000 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 year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Production information for Slime is as follows: Compute the amount of overhead assigned to Slime. a) $3,037,500
b) $2,025,000
c) $2,760,000
d) $2,467,851

c) $2,760,000

Explanation:

Computation of the amount of overhead assigned to Slime.

First step

Ordering and Receiving=Cost/Expected use of Driver×Additional Expected use of Driver

$1,200,000/2,000×1,600

=600×1,600

=$960,000

Mixing= Cost/Expected use of Driver×Additional Expected use of Driver

=1,500,000/50,000×30,000

=30×30,000

=$900,000

Testing=Cost/Expected use of Driver×Additional Expected use of Driver

= 1,350,000/1,500×1,000

=900×1,000

=$900,000

Second step

Addition of the total of :

Ordering and Receiving $960,000

Mixing $900,000

Testing $900,000

=$2,760,000

Therefore the amount of overhead assigned to Slime will be $2,760,000

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