Question

Peters, Inc. produces 3 products: P1, Q2, and R3. P1 requires 400 purchase orders, Q2 requires 600 purchase orders, and R3 requires 1000 purchase orders. Peters has identified an ordering and receiving activity cost pool with allocated overhead of $390000 for which the cost driver is purchase orders. Direct labor hours used on each product are 50000 for P1, 40000 for Q2, and 110000 for R3. How much ordering and receiving overhead is assigned to each product

Answer 1

P1 $78,000

Q2 $117,000

R3 $195,000

Step-by-step explanation:

Calculation to determine How much ordering and receiving overhead is assigned to each product

First step is to calculate the price per order using this formula

Price per order= Total cost of purchase orders ÷ total purchase orders

Let plug in the formula

Price per order= $390000 ÷ (400 + 600 + 1,000)

Price per order= $390000 ÷2,000 orders

Price per order= $195

Now let determine How much ordering and receiving overhead is assigned to each product

Using this formula

Ordering and receiving overhead = Purchase orders × price per order

Let plug in the formula

P1 = 400 × $195

P1= $78,000

Q2 = 600 × $195

Q2=$117,000

R3 = 1,000 × $195

R3=$195,000

Therefore How much ordering and receiving overhead is assigned to each product are :

P1 $78,000

Q2 $117,000

R3 $195,000