A+ Ltd’s overhead consists of two types of expenditure, namely rent ($72,000) and delivery ($25,200). 9,200 and 8,800 square foot of space are occupied by product A and B respectively. During the year, there were 28,000 orders for delivery of product A while there were 1,400 orders for product B. Allocate the delivery overhead to each product.Question 7
Question
A+ Ltd’s overhead consists of two types of expenditure, namely rent (25,200). 9,200 and 8,800 square foot of space are occupied by product A and B respectively. During the year, there were 28,000 orders for delivery of product A while there were 1,400 orders for product B. Allocate the delivery overhead to each product.Question 7
Solution
To allocate the delivery overhead to each product, we first need to determine the total number of orders, which is 28,000 (for product A) + 1,400 (for product B) = 29,400 orders.
Next, we calculate the overhead cost per order by dividing the total delivery overhead by the total number of orders. So, 0.857 per order.
Now, we can allocate the delivery overhead to each product by multiplying the overhead cost per order by the number of orders for each product.
For product A: 23,996 For product B: 1,200
So, the delivery overhead allocated to product A is 1,200.
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