Consumption Ratios; Activity Rates

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

Line Item Description	Scented Cards	Regular Cards
Inspection hours	100	100
Setup hours	100	30
Machine hours	170	610
Number of moves	220	85

The following activity data has been collected:

Line Item Description	Amount
Inspecting products	$5,020
Setting up equipment	4,730
Machining	6,320
Moving materials	1,450

Required:

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

Line Item Description	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?

fill in the blank 1 of 6

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, fill in the blank 2 of 6

scented or regular

cards would receive 22% of the overhead, and fill in the blank 3 of 6

scented or regular

cards would receive 78% of the overhead. Yet, the fill in the blank 4 of 6

scentedregular

cards consume well over 50% of the non-machine related overhead. Thus, the Scented cards are fill in the blank 5 of 6

overcosted or undercosted

, and the Regular cards are fill in the blank 6 of 6

overcosted or undercosted

. 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.

Line Item Description	Activity rate
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 budget for inspection is $56,000 for the coming year and that the activity rate for inspecting products is $25 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.