Apac Ltd makes small trailers to the precise specifications of individual customers. The following are predicted to occur during the forthcoming year, which is about to start:

Direct materials cost	50,000
Direct labour cost	160,000
Direct labour time	16,000 hours
Indirect labour cost	25,000
Depreciation of machine	8,000
Rent	10,000
Heating, lighting and power	5,000
Indirect materials	2,000
Other indirect (overhead) costs	1,000
Machine time	3,000 hours

All direct labour is paid at the same hourly rate. A customer has asked the business to build a trailer for transporting a racing motorcycle to race meetings. It is estimated that this will require materials and components that will cost 1,150. It will take 250 direct labour hours to do the job, of which 50 will involve the use of machinery.

Required:

1. Using any appropriate method of absorbing the overhead, calculate the total cost of building the trailer.

2. Discuss the merits and demerits of the overhead absorption method used in (a) above.

3. Explain with example the following terms used in cost accounting:

1. Allocation of overhead

2. Apportionment of overhead

Absorption of overhead