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	110		90
Setup hours	90		10
Machine hours	180		640
Number of moves	240		55

The following activity data has been collected:

Inspecting products	$5,040
Setting up equipment	4,830
Machining	6,450
Moving materials	1,400

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?

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, cards would receive 22% of the overhead, and cards would receive 78% of the overhead. Yet, the cards consume well over 55% of the non-machine related overhead. Thus, the Scented cards are , and the Regular cards are . 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. inspection hours