A Company Incurs $1,200,000 of Overhead Each Year in Three

question 20

Multiple Choice

A company incurs $1,200,000 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: $$\begin{array} { c c c } \text { Department } & \text { Estimated use of Driver } & \text { Cost } \\\hline \text { Processing } & 800 & \$ 500,000 \\\text { Packaging } & 200,000 & 500,000 \\\text { Testing } & 2,000 & 200,000\end{array}$$ Production information for oil is as follows:
$$\begin{array} { l c } \underline{\text { Department }} &\underline{ \text { Estimated use of Driver }} \\\text { Processing } & 300 \\\text { Packaging } & 120,000 \\\text { Testing } & 1,600\end{array}$$ Calculate the amount of overhead assigned to oil.

• A)$600,000
• B)$647,500
• C)$552,500
• D)$460,000

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Definitions:

Savings Account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

Interest Rate

The cost of borrowing money or the return on investment expressed as a percentage, typically on an annual basis.

Implicit Costs

Non-monetary opportunity costs, such as time or foregone alternatives, not directly accounted for in financial transactions.

Explicit Costs

Direct, out-of-pocket payments for expenses such as wages, rent, and materials, which are easily quantifiable.