Question

Morrow Co. produces three products: Beta, Delta, and Gamma. Beta requires 400 purchase orders, Delta requires 600 purchase orders, and Gamma requires 1,000 purchase orders. Morrow has identified an ordering and receiving activity cost pool with allocated overhead of $180,000. The cost driver for the pool is purchase orders. Direct labor hours used on each product are 50,000 for Beta, 40,000 for Delta, and 110,000 for Gamma. How much ordering and receiving overhead is assigned to each product

Answer 1

Based on the allocated overhead, and the number of purchase orders, the ordering and receiving overhead for each product is:

• Beta - $36,000
• Delta - $54,000
• Gamma - $90,000

Beta Ordering and Receiving Overhead

The cost driver for the pool is the number of purchase orders. The cost here would therefore be:

= No. of purchase orders x (Total overhead cost / Total number of orders)

= 400 x ( 180,000 / (400 + 600 + 1,000))

= $36,000

Delta Ordering and Receiving Overhead

= 600 x ( 180,000 / (400 + 600 + 1,000))

= $54,000

Gamma Ordering and Receiving Overhead

= 1,000 x ( 180,000 / (400 + 600 + 1,000))

= $90,000

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