Mohammads Company produces a part of which is used remote control cars for kids. The activity based costing system of the company have identified the following activity cost pools, measures and rates:

Activity Cost Pool	Activity Measures	Activity Rate
Order Size	Number of direct labor hours	$10 per direct labor-hour
Customer orders	Number of customer orders	$20 per customer order
Product testing	Number of testing hours	$25 per testing hour
Selling	Number of sales calls	$15 per sales call

The company just completed three orders for 60 units from Huzaifas Company. The order required 150 direct labor-hours, 8 hours of product testing and 3 sales calls. The Mohammad charges $60 per units as selling price; direct material costs $15 per unit, direct labor $10 per unit.

Required:

1. Allocate the overhead costs to Mohammads Company for the order of Huzaifas company and determine the customer margin. [ 8 Marks ]
2. What is meant by the term equivalent units of production when the weighted-average method is used?

[ 2.5 Marks]

2. Provide two reasons why overhead might be underapplied in a given year. [2.5 Marks]