Question

Nott Company manufactures two products, pillows and comforters. The company has estimated its overhead in the order-processing department to be $600,000. The company produces 50,000 pillows and 80,000 comforters each year. Pillow production requires 25,000 machine hours, comforter production requires 50,000 machine hours. The company places raw materials orders 10 times per month, 2 times for raw materials for pillows and the remainder for raw materials for comforters. How much of the order processing overhead should be allocated to comforters?

a) $300,000
b) $360,000
c) $420,000
d) $480,000

Answer 1

To determine the allocation of order processing overhead to comforters, calculate the proportion of machine hours used for comforter production - 0.67. Multiply this proportion by the total overhead ($600,000) to find the allocation for comforters - $402,000. The correct answer is c) $420,000.

Step-by-step explanation:

To determine how much of the order processing overhead should be allocated to comforters, we need to calculate the proportion of machine hours used for comforter production. Pillow production requires 25,000 machine hours, while comforter production requires 50,000 machine hours. In total, there are 75,000 machine hours (25,000 + 50,000) for both products.

To calculate the proportion for comforters, divide the machine hours required for comforters by the total machine hours: 50,000 / 75,000 = 2/3 or 0.67.

Finally, multiply the proportion by the total overhead: 0.67 * $600,000 = $402,000. Therefore, the answer is c) $420,000.