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 plantwide (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 ifthe machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?LO1

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