Blitzer Enterprises has identified three cost pools and three corresponding cost drivers to allocate overhead costs. The following estimates are provided for the coming year:

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

-Which method of allocation probably best estimates actual overhead costs used for Blitzer Enterprises? 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 it best reflects the relative consumption of resources.
D)Three activity-cost drivers,because product costs can be significantly cross-subsidized.

Question

Blitzer Enterprises has identified three cost pools and three corresponding cost drivers to allocate overhead costs. The following estimates are provided for the coming year:

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

-Which method of allocation probably best estimates actual overhead costs used for Blitzer Enterprises? 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 it best reflects the relative consumption of resources. 
D)Three activity-cost drivers,because product costs can be significantly cross-subsidized.

Quizplus · Accepted Answer

Three activity-cost drivers best reflect the relative consumption of resources, allowing for a more accurate allocation of overhead costs. Single direct labor-hours may not accurately represent the resources used for each job, and can lead to cross-subsidization of product costs.

Blitzer Enterprises Has Identified Three Cost Pools and Three Corresponding