Best Dressed (Pty) Ltd (BD) uses a normal costing system to allocate production overhead to job orders. The budgeted rate is on a machine hour basis for the machining department and on a budgeted direct labour hour basis for the finishing department. The entity estimated the following for the current year:

	Machining	Finishing
Production overhead cost	$11,750000	$9,500,000
Machine hours	225000	31000
Direct labour hours	32000	165000
Direct labour cost	$1,600,000	$5,775,000

During May 2021, the cost record for job order no. 777 shows the following:

	Machining	Finishing
Direct materials requisitioned	$18,000	$2,500
Direct labour cost	$1,500	$2,000
Direct labour hours	25	50
Machine hours	135	15

Required

1. Explain in your own words the normal system of allocating direct costs and allocating production overhead. Apply the normal costing system to calculate the estimated overhead rate that should be used in the:

1. machining department, and
2. finishing department.

[5 marks]

2. Apply the estimated overhead rate in a) above and determine the production overhead costs that should be allocated to job 777.

[4 marks]

3. If job 777 manufactured 450 units of product, what is the unit cost per product of job 777?

[3 marks]

4. Provide reasons why BD uses two different overhead application bases. Also discuss why they might use labour costs in the finishing department to allocate overhead costs. Show calculations to justify your answer.

[8 marks]