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:

Answer 1

Answer:

b.$1,657,500

Explanation:

A. Activity rate

Department

Processing

Packaging

Testing

Expected Use of Driver

800

200,000

2000

Cost

1,500,000

15,000,000

600,000

Activity For Sludge (cost÷expected use of driver)

1,875.00

7.50

300.00

B. Allocated cost

Department

Processing

Packaging

Testing

Activity Rate ( Estimated Cost/ Total Activity)

1,875.00

7.50

300.00

Activity For Sludge

500.00

80,000.00

400.00

Allocated Cost ( Activity Rate× Activity for Sludge)

937,500.00

600,000.00

120,000

Total Allocated cost $ 1,657,500.00