When selling prices are based on costs assigned using the single cost driver, direct labour hours, then the Mossman job
A) is fairly billed because resources are allocated uniformly to all jobs.
B) is grossly under billed for the job, while other jobs will be unfairly over billed.
C) may increase overall sales as other jobs will be cross-subsidized.
D) will contribute too little to profits, and Gregory Enterprises will not want to accept additional work from the company.
E) will likely seek to do business with competitors.

Question

Quizplus · Accepted Answer

When selling prices are based on a single cost driver like direct labor hours, jobs that consume resources differently than what direct labor hours suggest will be mispriced. If the Mossman job uses more resources than what is represented by direct labor hours, it will be under billed, leading to other jobs being over billed to compensate.

When Selling Prices Are Based on Costs Assigned Using the Single