Larsen, Inc., produces two types of electronic parts and has provided the following data:

There are four activities: machining, setting up, testing, and purchasing.
Required:
1. Calculate the activity consumption ratios for each product.
2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted?
3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?

Transcribed Image Text:

Part X12 Part YK7 600,000 70,000 300,000 Total Units produced Direct labor hours Machine hours Number of setups Testing hours Number of purchase orders 100,000 30,000 50,000 40 1,000 500 100,000 350,000 120 10,000 4,000 80 9,000 3,500