Author Question: Which method of allocation probably best estimates actual overhead costs used? Why? Gregory ... (Read 63 times)

Lobcity · **on:** Jul 5, 2018

Which method of allocation probably best estimates actual overhead costs used? Why?

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

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.

Question 2

Financial statements commonly prepared by businesses include an income statement, a statement of owner's equity, and a balance sheet.
a. True
b. False
Indicate whether the statement is true or false