Vallerina Ltd manufactures girls clothing. They have only one product being produced in 2014, girls ballerina dresses. Vallerina Ltd has 25 staff and is an established business with a good reputation. Overhead is applied on the basis on sewing machine hours. A predetermined overhead application rate of $5.85 was established for 2014. During the production of 800 dresses, raw materials totalled $12,500; direct labour totalled $8,500 and there were 3500 sewing machine hours during the period.

1. Give two examples of indirect costs and two examples of direct costs for Vallerina Ltd.
2. How would the allocation base for overheads be decided?
3. In one sentence, state what happens to the over or under allocated overhead at the end of the period?
4. Calculate Vallerina Ltds cost of goods manufactured and the product cost per dress for 201
5. How do managers calculate the predetermined overhead application rate?