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

question 97

Multiple Choice

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: $\begin{array}{crr}\text { Department}&\text {Expected use of Driver }&\text {Cost }\\\hline \text { Processing } & 800 & \$ 1,500,000 \\\text { Packaging } & 200,000 & 1,500,000 \\\text { Testing } & 2,000 & 600,000\end{array}$

$\text { Production information for the two products is as follows: }$
$\begin{array}{lcc}&\text { Oil }&\text { Sludge }\\\text { Department }&\text { Expected Use of Driver }&\text { Expected Use of Driver }\\\text { Processing } & 300 & 500 \\\text { Packaging } & 120,000 & 80,000 \\\text { Testing } & 1,600 & 400\end{array}$ The amount of overhead assigned to Sludge using ABC is

• A)$1,800,000.
• B)$1,657,500.
• C)$1,942,500.
• D)$1,380,000.

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Definitions:

Total Expenditures

The combined amount of money spent by an individual, organization, or government over a specific period of time.

Inelastic Demand

A market situation where the demand for a product does not significantly change in response to changes in price, often applicable to necessities or products with few substitutes.

Board of Regents

An administrative body that governs institutions of higher education, overseeing budgetary matters, academic policies, and major appointments.

Elastic Demand

A situation in which the quantity demanded of a good or service is highly responsive to changes in its price.