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jerico jerico
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Posts: 4603
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9 years ago
Gregory Enterprises has identified three cost pools to allocate overhead costs. The following estimates are provided for the coming year:

Cost Pool   Overhead Costs   Cost driver   Activity level
Supervision of direct labor   $320,000   Direct labor-hours   800,000
Machine maintenance   $120,000   Machine-hours   960,000
Facility rent   $200,000   Square feet of area   100,000
   Total overhead costs   $640,000

The accounting records show the Mossman Job consumed the following resources:

   Cost driver   Actual level
   Direct labor-hours   200
   Machine-hours   1,600
   Square feet of area   50

Which method of allocation probably best estimates actual overhead costs used? Why?
A) Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.
B) Single direct labor-hours cost driver because it is easiest to analyze and interpret.
C) Three activity-cost drivers because they best reflect the relative consumption of resources.
D) Three activity-cost drivers because product costs can be significantly cross-subsidized.
Textbook 
Cost Accounting

Cost Accounting


Edition: 14th
Authors:
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cyborgcyborg
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9 years ago
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jerico Author
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9 years ago
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