Henderson Industrial Products Uses a Centralized Service Department for Procurement

Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisions-Construction, Manufacturing, and Military. The Construction Division has been allocated a total of $192,000 of costs from the procurement department. Of that amount, 75% is considered traceable to the three product types within the division-Civil Construction, Residential Construction, and Commercial Construction. The division will calculate an allocation rate to assign the traceable costs to each of the three product types based on number of purchase orders processed within each product type. Please refer to the following information: $$\begin{array} { | l | r | r | r | r | } \hline \text { Construction Division } & & & \\\hline \text { Product lines } & & \text { Revenues } & \text { Variable Expenses } & \text { Purchase Orders } \\\hline \text { Civil } & & \$ 36,000 & \$ 24,000 & 450 \\\hline \text { Residential } & & \$ 98,000 & \$ 41,000 & 900 \\\hline \text { Commerdal } & & \$ 216,000 & \$ 60,000 & 1,850 \\\hline \text { Total } & & \$ 360,000 & \$ 125,000 & 3,200 \\\hline\end{array}$$
-The allocation rate for the three product lines should be:

A) $45 per purchase order.
B) $60 per purchase order.
C) $75 per purchase order.
D) $80 per purchase order.

Correct Answer:

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