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

question 59

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: $$\begin{array} { l c r } \text { Department } & \text { Expected use of Driver } & \text { Cost } \\\hline \text { Processing } & 800 & \$ 500,000 \\\text { Packaging } & 200,000 & 500,000 \\\text { Testing } & 2,000 & 200,000\end{array}$$ Production information for oil is as follows: $$\begin{array} { l c } \text { Department } & \text { Expected use of Driver } \\\hline \text { Processing } & 300 \\\text { Packaging } & 120,000 \\\text { Testing } & 1,600\end{array}$$ 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:

Marginal Benefit

The additional benefit or satisfaction experienced when consuming another unit of a good or service.

Marginal Cost

The increase in cost that arises from producing one additional unit of a good or service.

Optimal Level

The state or condition where the best possible outcome is achieved, given the current set of circumstances or resources.

Degree of Complementarity

The extent to which one good or service complements another, affecting their demand when their prices change.