Reference no: EM131786238

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.