Shown below is next year's budget for a small engineering factory manufacturing two different products in two production departments, a machine shop and an assembly department. A canteen is also operated as a separate department:

Product Selling price, per unit Sales volume Increase (Decrease) in finished stocks Material cost, per unit Direct labour:

Machine shop ($3 per hr)

Assembly Dept ($2 per hr)

Machining:

Machine shop Assembly Dept A

$60 1500 units 500 units

$8 Hr per unit 5

4 3

1 8

$70 3000 units

(500) units

$5 Hr per unit 6

4 8

Machine shop $
26000 42000 $68000 15 4000 55 Assembly dept Canteen Total $ $ $
9000 35000 30000 16000 88000 $39000 $16000 $123000 9 1 1000 1000

(a) Establish an appropriate overhead absorption rate for each production department, and calculate the total budgeted cost per unit of each product. You must clearly state, and briefly justify, the methods of overhead absorption used

(b) Assuming the company operates a full absorption costing system, calculate the impact on budgeted profit if, next year, the actual results are as predicted except that sales and production of product A are 300 units higher than budget ACA, FE, Part B, Paper 6, Accounting 2, Costing, December 1979.