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:

-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.

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:
 
-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.

Quizplus · Accepted Answer

By using three activity-cost drivers, the overhead costs can be allocated based on the actual consumption of resources by each job. This method provides a more accurate estimation of actual overhead costs used compared to using a single direct labor-cost driver. Additionally, using a single cost driver can lead to cross-subsidization, where one product subsidizes the costs of another product, which may result in inaccurate cost estimates.

Answer the Following Questions Using the Information Below