Canvas Design Plc has the following budgeted data for the coming year:

Direct Materials

$$40,000$

Direct Labour

$$35,000$

Production Overheads

$$250,000$

Machine Hours

$10,000$

Labour Hours

$125,000$

A reputed and worthy client has reached out to the company to produce a batch of customised posters. The management accountant has been asked to estimate the cost structure for this specific order. He has estimated that the following costs will be incurred for the job:

Direct Materials

$$2,400$

Direct Labour

$$1,800$

Machine Hours

$40$

Labour Hours

$250$

At the end of the year, the actual results for the company were:

Direct Materials

$$45,000$

Direct Labour

$$29,000$

Production Overheads

$$275,000$

Machine Hours

$12,500$

Labour Hours

$115,000$

Required:

From the information provided above, explain why using direct labour hours is the preferred method of absorbing the production overhead.

Use the direct labour hour rate and calculate the cost of creating the customised poster job.

Determine the over or under recovery of the production overheads for the year.