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Could anyone help me with the following exercise?
I didn’t get how we obtain 600A, 400B, 200D
and 720A, 1080B?Thank you in advance
21. A company has two production departments and two service departments with the following fixed overheads:
Production Service
A B C D
$1,000 $1,200 $1,200 $1,600Service department C divides its time between the other departments in the ratio 3:2:1 (for A, B, and D respectively). Department D spends 40% of its time servicing Department A and 60% servicing Department B. If all service departments’ overheads are allocated to production departments, the total fixed overhead cost of Department A is:
A. $2,400,000
B. $2,200,000
C. $1,320,000
D. $2,320,000
D
The correct answer is: $2,320,000
A $ B $ C $ D $
Fixed Overheads 1,000 1,200 1,200 1,600
C (3:2:1) 600 400 (1,200) 200
1,800
D (40:60) 720 1,080 (1,800)
2,320If 1,200 is split in the ratio 3:2:1, then to A is 3/(3+2+1) x 1,200 = 600.
To B is 2/(3+2+1) x 1,200 = 500. and to C is 1/(3+2+1) x 1,200 = 200.If 1,800 is 40% 5o A and 60% to B, then to A is 40% x 1,800, and to B is 60% x 1,800.
Have you watched the free lectures on overheads? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Mr. Maffot, why have you considered the fixed overhead of A to be 1200 when the question says that the fixed overhead for A is only 1000. Please explain…I’m a little confused. Thank you!
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