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13 December, 03:26

A company incurs $2,700,000 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:

Department Expected use of Driver Cost

Ordering and Receiving 2,000 $800,000

Mixing 50,000 1,000,000

Testing 1,500 900,000

Production information for Slime is as follows:

Expected use of Driver

Ordering and Receiving 1,600

Mixing 30,000

Testing 1,000

Compute the amount of overhead assigned to Slime.

a) $1,350,000

b) $2,025,000

c) $1,645,234d) $1,840,000

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  1. 13 December, 07:25
    0
    Total allocated overhead = $1,840,000

    Explanation:

    Giving the following information:

    Department Expected use of Driver Cost

    Ordering and Receiving 2,000 $800,000

    Mixing 50,000 1,000,000

    Testing 1,500 900,000

    Production information for Slime is as follows:

    Expected use of Driver

    Ordering and Receiving 1,600

    Mixing 30,000

    Testing 1,000

    First, we need to calculate the predetermined overhead rate for each activity:

    Predetermined manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

    Ordering and Receiving = 800,000/2,000 = $400 per order

    Mixing = 1,000,000/50,000 = $20 per mixing hour

    Testing = 900,000/1,500 = $600 per test

    Now, we can allocate overhead:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    Ordering and Receiving = 400*1,600 = 640,000

    Mixing=20*30,000 = 600,000

    Testing = 600*1,000 = 600,000

    Total allocated overhead = $1,840,000
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