West Wales Windsurfers Ltd makes two models of windsurfer: the Fun Wave and the Hot Racer. The company has two production departments. It also has a canteen, which serves all employees. The predicted sales and costs for next year are as follows:

Required

(a) Advise West Wales Windsurfers Ltd on the method of overhead absorption that should be used for each cost centre, giving reasons for your choice.

(b) Calculate an appropriate overhead absorption rate for each production department.

(c) Calculate the predicted production cost per unit for each model.

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Selling price per unit Sales/production volume Material costs per unit Direct labour: Body workshop (3 per hour) 50 hours per unit Finishing workshop (2 per hour) 40 hours per unit Fun Wave 600 2,000 units 80 Hot Racer 700 2,500 units 50 60 hours per unit 40 hours per unit Machine hours: Body workshop 30 hours per unit 80 hours per unit Finishing workshop 10 hours per unit The production overheads for the cost centres are shown below, together with other relevant data. Production overheads Total Body workshop Finishing workshop Canteen Variable costs 350,000 260,000 90,000 0 Fixed costs 880,000 420,000 300,000 160,000 Total 1,230,000 680,000 390,000 160,000 Number of employees 150 90 10 Floor area (sq metres) 40,000 10,000 10,000