Question 1: Mark Joshua & Sons uses an estimated overhead rate for allocating production overhead to job orders. The rate is on a machine hour basis for the machining department and on a direct labour cost basis for the finishing department. The entity estimated the following for the current year:

	Machining	Finishing
Production overhead cost	$10 000 000	$8 000 000
Machine hours	200 000	33 000
Direct labour hours	30 000	160 000
Direct labour cost	$900 000	$4 000 000

During January, the cost record for job order no. 806 shows the following:

	Machining	Finishing
Direct materials requisitioned	$14 000	$3 000
Direct labour cost	$600	$1 250
Direct labour hours	30	50
Machine hours	130	10

Total costs and machine hours were as follows for the current year:

	Machining	Finishing
Production overhead incurred	$10 200 000	$7 900 000
Direct labour cost	$950 000	$3 900 000
Machine hours	220 000	32 000

Required

(a) What is the estimated overhead rate that should be used in the: (1+1)

(i) machining department?

(ii) finishing department?

(b) What is the total overhead allocated to job 806? (2)

(c) Assuming that job 806 manufactured 200 units of product, what is the unit cost of job 806? (1)

(d) What is the total amount of overapplied or underapplied overhead in each department at the end of the year? (2)

(e) Provide reasons why Mark Joshua & Sons uses two different overhead application bases. Also discuss why they might use machine hours and labour costs to allocate overhead costs. (2)