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: $\begin{array}{crr}\text { Department}&\text { Estimated use of Driver}&\text { Cost }\
\text { Ordering and Receiving } & 2,000 & \$ 1,200,000 \
\text { Mixing } & 50,000 & 1,500,000 \
\text { Testing } & 1,500 & 1,350,000
\end{array}$
$\text { Production information for Goo is as follows: }$
$\begin{array}{cr}\text { Department }&\text { Estimated use of Driver }\
\text { Ordering and Receiving } & 400 \
\text { Mixing } & 20,000 \
\text { Testing } & 500
\end{array}$ Compute the amount of overhead assigned to Goo.
A) $1,012,500
B) $1,290,000
C) $1,582,146
D) $2,025,000

Question

Quizplus · Accepted Answer

To calculate the overhead assigned to Goo, we first determine the overhead rate for each department by dividing the total cost by the estimated use of the driver. Then, we multiply the overhead rate by the estimated use of the driver for Goo in each department.1. Ordering and Receiving: $1,200,000 / 2,000 orders = $600 per order. For Goo: 400 orders * $600 = $240,000.2. Mixing: $1,500,000 / 50,000 hours = $30 per hour. For Goo: 20,000 hours * $30 = $600,000.3. Testing: $1,350,000 / 1,500 tests = $900 per test. For Goo: 500 tests * $900 = $450,000.Total overhead assigned to Goo = $240,000 (Ordering and Receiving) + $600,000 (Mixing) + $450,000 (Testing) = $1,290,000.

A Company Incurs $4,050,000 of Overhead Each Year in Three