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Consumption Ratios; Activity Rates

Saludable Company produces two types of get-well cards: scented and regular. Drivers for the four activities are as follows:

	Scented Cards		Regular Cards
Inspection hours	120		60
Setup hours	60		10
Machine hours	200		630
Number of moves	215		85

The following activity data has been collected:

Inspecting products	$5,100
Setting up equipment	4,770
Machining	6,450
Moving materials	1,300

Required:

1. Calculate the consumption ratios for the four drivers. Round your answers to two decimal places.

	Scented Cards	Regular Cards
Inspection hours	fill in the blank 1	fill in the blank 2
Setup hours	fill in the blank 3	fill in the blank 4
Machine hours	fill in the blank 5	fill in the blank 6
Number of moves	fill in the blank 7	fill in the blank 8

2. Which of the following statements indicate there is product diversity?

Significant variation in the consumption ratios from driver to driver.Least variation in the consumption ratios from driver to driver.Significant variation in the activities involved in production.Least variation in the activities involved in production.

Explain the significance of product diversity for decision making if the company chooses to use machine hours to assign all overhead.

If machine hours are used as the only driver,

scentedregular

cards would receive 24% of the overhead, and

scentedregular

cards would receive 76% of the overhead. Yet, the

scentedregular

cards consume well over 67% of the non-machine related overhead. Thus, the Scented cards are

overcostedundercosted

, and the Regular cards are

overcostedundercosted

. This inaccuracy can adversely affect many decisions, including pricing, keep or drop, and cost-volume-profit.

3. Calculate the activity rates that would be used to assign costs to each product. Round your answers to the nearest cent.

Rates:
Inspecting products	$fill in the blank 15 per inspection hour
Setting up equipment	$fill in the blank 16 per setup hour
Machining	$fill in the blank 17 per machine hour
Moving materials	$fill in the blank 18 per move

4. Suppose that the activity rate for inspecting products is $20 per inspection hour. How many hours of inspection are expected for the coming year? If required, round your answer to nearest whole number of hours. fill in the blank 19 inspection hours

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