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    Allocation Methods and Overhead Costs

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    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:
    Cost Pool Overhead Costs Cost Driver Activity Level
    Supervision of Direct Labor $480,000 Direct Labor Hours 800,000
    Machine Maintenance $220.000 Machine Hours 550,000
    Facility Rent $260,000 Square feet area 100,000
    Total overhead costs $960,000

    The accounting records show that Gergen Job consumed the following resources:
    Cost Driver Actual Level
    Direct labor-hours 600
    Machine Hours 2100
    Square feet of area 90

    1. If direct labor-hours are considered as the only overhead cost driver, what is the single cost driver rate for Blitzer Enterprises?

    2. Using direct labor-hours as the only overhead cost driver, what is the amount of overhead costs allocated to the Gergen Job?

    3. If Blitzer Enterprises uses the three activity cost pools to allocate overhead costs, what are the activity-cost driver rates for the supervision of direct labor, machine maintenance, and facility rent, respectively?

    4. Using the three cost pools to allocate overhead costs, what is the total amount of overhead costs to be allocated to the Gergen Job?

    5. Which method of allocation probably best estimates actual overhead costs used for Blitzer Enterprises? Why?

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    Solution Summary

    The following posting helps with problems involving labor-hours, allocation methods and overhead costs.