A company incurs $3,600,000 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: $$\begin{array}{l}
\begin{array} { l c r }
\text { Department } & \text { Expected Use of Driver } & { \text { Cost } } \
\text { Processing } & 800 & \$ 1,500,000 \
\text { Packaging } & 200,000 & 1,500,000 \
\text { Testing } & 2,000 & 600,000
\end{array}\
\text { Production information for the two products is as follows: }\\
\begin{array}{ll}
&\text { Oil }&\text { Sludae }\\text { Department }&\text { Expected Use of Driver }&\text { Expected Use of Driver }\\hline \text { Processing } & 300 & 500 \
\text { Packaging } & 120,000 & 80,000 \
\text { Testing } & 1,600 & 400
\end{array}
\end{array}$$
-The amount of overhead assigned to Oil using ABC is

Question

A company incurs $3,600,000 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: $$\begin{array}{l}
\begin{array} { l c r } 
\text { Department } & \text { Expected Use of Driver } &  { \text { Cost } } \
\text { Processing } & 800 & \$ 1,500,000 \
\text { Packaging } & 200,000 & 1,500,000 \
\text { Testing } & 2,000 & 600,000
\end{array}\
\text { Production information for the two products is as follows: }\\
\begin{array}{ll}
&\text { Oil }&\text { Sludae }\\text { Department }&\text { Expected Use of Driver }&\text { Expected Use of Driver }\\hline \text { Processing } & 300 & 500 \
\text { Packaging } & 120,000 & 80,000 \
\text { Testing } & 1,600 & 400
\end{array}
\end{array}$$ 
-The amount of overhead assigned to Oil using ABC is

Quizplus · Accepted Answer

The overhead assigned to Oil using ABC is $1,942,500. This is calculated by multiplying the overhead rate for each department by the expected use of the driver for that department for Oil. The overhead rate for the Processing department is $1,500,000 / 800 = $1,875 per transaction. The expected use of the driver for the Processing department for Oil is 300 transactions. Therefore, the overhead assigned to Oil from the Processing department is $1,875 * 300 = $562,500. The overhead rate for the Packaging department is $1,500,000 / 200,000 = $7.50 per transaction. The expected use of the driver for the Packaging department for Oil is 120,000 transactions. Therefore, the overhead assigned to Oil from the Packaging department is $7.50 * 120,000 = $900,000. The overhead rate for the Testing department is $600,000 / 2,000 = $300 per test. The expected use of the driver for the Testing department for Oil is 1,600 tests. Therefore, the overhead assigned to Oil from the Testing department is $300 * 1,600 = $480,000. The total overhead assigned to Oil is $562,500 + $900,000 + $480,000 = $1,942,500.

A Company Incurs $3,600,000 of Overhead Each Year in Three