Author Question: Gregory Enterprises has identified three cost pools to allocate overhead costs. The following ... (Read 135 times)

PhilipSeeMore · **on:** Mar 6, 2021

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?
◦ Single direct labor-hours cost driver because it is best to allocate total costs uniformly to individual jobs.
◦ Single direct labor-hours cost driver because it is easiest to analyze and interpret.
◦ Three activity-cost drivers because they best reflect the relative consumption of resources.
◦ Three activity-cost drivers because product costs can be significantly cross-subsidized.

Sierray · **Reply #1 on:** Mar 6, 2021

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