Question 2 QRS Company manufactures circuit boards for inclusion in laptop computers. It has two support departments (Administration and Maintenance) and three production departments (Fabricating, Assembly, and Finishing). Costs and activities are as follows: Budgeted costs $50,000 $30,000 Administration Maintenance Fabricating Assembly Finishing $50,000 $25,000 $40,000 Number of 10 30 40 20 employees Square feet 2,000 10,000 28,000 15,000 Direct labour 4,400 5,100 1,850 hours Direct labour $45 $30 $25 cost per hour Budgeted costs are split equally in each department between fixed and variable costs. Administrative services are allocated based on the number of employees; maintenance services are allocated based on square footage. Overhead rates for the three production departments are based on direct labor hours. QRS produces many different product lines, the most popular being the B-100 circuit board. Per unit production data regarding this product is as follows: Direct material cost Fabricating direct labour hours Assembly direct labour hours Finishing direct labour hours Selling price $62.50 3 3 1.5 $500 Required: a) What is the difference between a production department and a support department? Why is this distinction important in terms of allocating overhead costs? (2 marks) b) Describe how the direct and step-down methods of overhead allocation treat the interaction among support departments? (2 marks) c) Determine the overhead application rates for each production department using the reciprocal allocation method. (5 marks) d) How many units of B-100 must QRS sell in order to make a target net profit of $12,266 for this product line? (6 marks) (2+2+5+6= 15 marks)