Question 2: Job-order costing 25 MARKS

a. Beijing Company provides various types of vehicle services. The services are provided through either fully automated or semi-automated machines. The companys management team is thinking of using a job-order costing system to determine the cost of the services provided to clients. However, the company is in a dilemma about deciding the appropriate allocation base that will be used to allocate overhead costs to a specific job. The company has recently hired a cost consultant to address this problem. Imagine that you are that cost consultant and write down your responses about what would be the most appropriate allocation base for the company, and why. [Maximum word limit: 240 words] (8 marks)

b. At the beginning of the year, Beijing company made the following estimates: Machine hours required to support the operations 140,000 Direct labour hours required to support the operations 45,000 Fixed overhead cost $880,000 Variable overhead cost per machine hour $5 Variable overhead cost per direct labour hour $7 Calculate the predetermined overhead rate. Here, you need to use the allocation base that you selected in requirement (a). (8 marks)

c. Imagine that the company has $40,000 underapplied overhead. Also, imagine that the companys policy is to close out the entire under/overapplied overhead costs to Cost of Goods Sold account. Write down a report discussing why the company has underapplied overhead cost and what would be the effect of this underapplied overhead cost on net operating income. [Maximum word limit: 270 words]

Plz answer just question C