Upon deeper reflection on the above issues both John and the CEO decide that external expertise is needed to solve the current impasse in the costing system. They hire your consulting group to provide recommendations in the form of a management consulting report. They have requested that the following information be included in the report: 1. Using the data in the exhibits, determine the conversion cost of a 100-unit batch of TR-20 beeswax candle, a month's production of spare candles for inventory, and a month's work done for other divisions under the present model, John' first proposal, and his revised proposal. 2. Assume that direct materials cost for a 100-unit batch of TR-20 beeswax candle is $2,200 and that lllumina sells these candles at $46 each. Should the TR-20 price be increased? Should it be dropped from the product line? (Answer using both the present and first proposed costing methods). Exhibit 1: Calculation of Plantwide Labour and Overhead Hourly Rate for October (Present Model) Labour Dollars Hours Wick making $20,475 1,264 Wax melting 14,440 1,070 Molding 71,950 3,838 Custom work 30,623 1,856 Packing 109,420 7,679 Total labour 246,908 15,707 Overhead 412,270 Total labour and overhead 659,178 Hourly Rate = $659,178/15,707 = $41.97 per hour (= $15.72 labour + $26.25 overhead) Exhibit 2: Proposed Departmental Labour and Overhead Hourly Rates (John's first proposal) Labour Rate Overhead Total Cost Department per Hour per Hour per Hour Wick making $16.50 $25.33 $41.83 Wax melting 13.70 23.62 37.32 Molding 20.00 48.65 68.65 Custom work 16.50 31.46 47.96 Packing 14.50 16.89 31.39 Exhibit 3: Direct Labour Hour Distribution for Three DTC's Activities Department Wick making Wax melting Molding Custom work Packing Total TR-20 Beeswax Candles (per Batch of 100) 7 hours 6 23 14 50 hours Spare Candles Work for for Inventory Other Divisions (per Month) (per Month) 121 hours 250 hours 108 218 446 863 675 hours 1,331 hours Exhibit 4: Departmental Overhead Rates Based on Normal Volume (John's revised proposal) Normal Volume Normal Overhead Overhead Department (DLH) Cost* (per DLH) Wick making 2,500 $59,100 $23.64 Wax melting 2,300 52,310 22.74 Molding 8,200 371,000 45.24 Custom work 3,600 112,839 31.34 Packing 17,200 265.328 15.43 Total 33,800 860,577 25.46 * Estimated overhead cost if each department operates at its normal volume