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

question 148

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: $$\begin{array}{l}\begin{array} { l c r } \text { Department } & \text { Expected Use of Driver } & { \text { Cost } } \\\text { Processing } & 800 & \$ 1,500,000 \\\text { Packaging } & 200,000 & 1,500,000 \\\text { Testing } & 2,000 & 600,000\end{array}\\\text { Production information for the two products is as follows: }\\\\\begin{array}{ll}&\text { Oil }&\text { Sludae }\\\text { Department }&\text { Expected Use of Driver }&\text { Expected Use of Driver }\\\hline \text { Processing } & 300 & 500 \\\text { Packaging } & 120,000 & 80,000 \\\text { Testing } & 1,600 & 400\end{array}\end{array}$$ The amount of overhead assigned to Oil using ABC is

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

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Definitions:

Specialized Knowledge

Expertise or skills focused on a specific branch of study, occupation, or field of endeavor, distinguished by its depth and proficiency.

Cost-Push Inflation

Inflation caused by an increase in prices of inputs like labour, raw material, etc., leading to a decrease in the supply of these goods.

Raw Materials

Fundamental materials that are used in the production process to create goods and products.

Prices of Raw Materials

The cost of basic materials used in the manufacture of products, which can affect production costs and pricing strategies.