Answer the following questions using the information below:
Gregory Enterprises has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year:
The accounting records show the Mossman Job consumed the following resources:

-When selling prices are based on costs assigned using the single cost driver, direct labour hours, then the Mossman job
A)is fairly billed because resources are allocated uniformly to all jobs.
B)is grossly under billed for the job, while other jobs will be unfairly over billed.
C)may increase overall sales as other jobs will be cross-subsidized.
D)will contribute too little to profits, and Gregory Enterprises will not want to accept additional work from the company.
E)will likely seek to do business with competitors.

Question

Answer the following questions using the information below:
Gregory Enterprises has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year:
  The accounting records show the Mossman Job consumed the following resources:
 
-When selling prices are based on costs assigned using the single cost driver, direct labour hours, then the Mossman job
A)is fairly billed because resources are allocated uniformly to all jobs. 
B)is grossly under billed for the job, while other jobs will be unfairly over billed. 
C)may increase overall sales as other jobs will be cross-subsidized. 
D)will contribute too little to profits, and Gregory Enterprises will not want to accept additional work from the company. 
E)will likely seek to do business with competitors.

Quizplus · Accepted Answer

The Mossman job consumed a higher proportion of overhead costs than other jobs when resource usage is considered. However, using direct labour hours as the single cost driver will under-bill the job, resulting in unfair over-billing of other jobs. This may result in Gregory Enterprises losing potential sales from customers who are unfairly charged, while also not earning sufficient profits from the under-billed Mossman job. Therefore, the best choice is B.

Answer the Following Questions Using the Information Below