Gregory Enterprises Has Identified Three Cost Pools to Allocate Overhead

Gregory Enterprises has identified three cost pools to allocate overhead costs.The following estimates are provided for the coming year: $$\begin{array} { l r l r } \text { Cost Pool } & \text { Overhead Costs } & \text { Cost driver } & \text { Activity level } \\\text { Supervision of direct labor } & \$ 320,000 & \text { Direct labor-hours } & 800,000 \\\text { Machine maintenance } & \$ 120,000 & \text { Machine-hours } & 960,000 \\\text { Facility rent } & \$ 200,000 & \text { Square feet of area } & 100,000 \\\text { Total overhead costs } & \$ 640,000 & &\end{array}$$ The accounting records show the Mossman Job consumed the following resources:
$$\begin{array}{ll}\text { Cost driver } & \text { Actual level } \\\text { Direct labor-hours } & 200 \\\text { Machine-hours } & 1,600 \\\text { Square feet of area } & 50\end{array}$$ 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.

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