Problem
Blitzer Enterprises has identified three cost pools and three corresponding cost drivers to allocate overhead costs. The following estimates are provided for the comingyear:
|
Cost Pool
|
Overhead Costs
|
Cost driver
|
Activity level
|
|
Supervision of direct labor
|
$480,000
|
Direct laborminus-hours
|
800,000
|
|
Machine maintenance
|
$220,000
|
Machineminus-hours
|
550,000
|
|
Facility rent
|
$260,000
|
Square feet of area
|
100,000
|
|
Total overhead costs
|
$960,000
|
|
|
The accounting records show the Gergen Job consumed the following resources:
|
Cost driver
|
Actual level
|
|
Direct laborminus-hours
|
600
|
|
Machineminus-hours
|
2,100
|
|
Square feet of area
|
90
|
Using the three cost pools to allocate overhead costs, what is the total amount of overhead costs to be allocated to the Gergen Job?
A. $1,350 B. $1,074C. $1,400D. $1,434
Which method of allocation probably best estimates actual overhead costs used for Blitzer Enterprises? Why?
A. Single direct laborminus-hours cost driver, because it is best to allocate total costs uniformly to individual jobs.B. Three activityminus-cost drivers, because product costs can be significantly crossminus-subsidized.C. Three activityminus-cost drivers, because it best reflects the relative consumption of resources.D. Single direct laborminus-hours cost driver, because it is easiest to analyze and interpret.