Calculate the consumption ratios for the four drivers. Round your answers to two decimal places
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 | 130 | 90 | ||
| Setup hours | 90 | 30 | ||
| Machine hours | 160 | 570 | ||
| Number of moves | 215 | 80 |
The following activity data has been collected:
| Inspecting products | $4,980 |
| Setting up equipment | 4,850 |
| Machining | 6,330 |
| Moving materials | 1,250 |
Required:
1. Calculate the consumption ratios for the four drivers. Round your answers to two decimal places.
| Scented Cards | Regular Cards | |
| Inspection hours | ||
| Setup hours | ||
| Machine hours | ||
| Number of moves |
2. Which of the following statements indicate there is product diversity?
Significant variation in the consumption ratios from driver to driver.
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, scented cards would receive 22% of the overhead, and regular cards would receive 78% of the overhead. Yet, the scented cards consume well over 59% of the non-machine related overhead. Thus, the Scented cards are undercosted , and the Regular cards are overcosted . 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 | per inspection hour |
| Setting up equipment | per setup hour |
| Machining | per machine hour |
| Moving materials | 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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