Activity Based Costing (25 Marks)

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:

Cost Pool	Overhead Costs	Cost driver	Activity level
Supervision of directlabour	$320,000	Directlabourhours	800,000
Machine maintenance	$120,000	Machine hours	960,000
Facility rent	$200,000	Squaremetresof area	100,000
Total overhead costs	$640,000

The accounting records show the Mossman Job consumed the following resources:

Cost driver	Actual level
Directlabour-hours	200
Machine-hours	1,600
Squaremetresof area	50

Required:

1. If Gregory Enterprises uses a simple cost system based on direct labour hoursthen what amount of indirect costs will be allocated to the Mossman job

2. What is the activity rate for machine maintenance costs?

3. If Gregory Enterprises uses an ABCsystemthen what amount of indirect costs will be allocated to the Mossman job?

4. When selling prices are based on costs assigned using the single cost driver, direct labourhours, then would the Mossman job be overbilled orunderbilled

5. What are the benefits ofABC?