The ABC manufacturing company prepares the following budget for 2021.

Machining

Finishing

Factory overhead

$ 72,000

$ 100,000

Machine hours

2000

740

Direct labour cost

$ 60,000

$ 250,000

ABC company uses a predetermined overhead rate for applying overhead based on machine hours for 'machining' and direct labour cost for 'finishing'.

You are given the following actual information about one job:

Machining

Finishing

Direct materials used

$ 9,000

$ 2,000

Machine hours

200

40

Direct labour cost

$ 8,000

$ 15,000

Required

(1) Compute the total cost (full cost) for this job. (10 marks)

(2) Discuss why we need to absorb overhead. (5 marks)