Question

A company signs a contract to sell items at a "cost-plus", meaning the payments per item is based on the actual production costs plus a profit markup. The company manufactures multiple products and to collect more money on the contract they manipulate the allocation of overhead costs from other jobs to the "cost-plus" jobs. They figured nobody would catch the changes in the workers' time sheets.

Identify the cost system the company is using and why you selected it. Explain what cost driver(s) the company was using to allocate the costs to the various jobs. Identify what the benefit to the company is in the above scenario.

Based on the cost system you chose above, explain the benefits and issues if the company used the other cost system studied.