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 140 80 Setup hours 80 10 Machine hours 210 560 Number of moves 240 75 The following activity data has been collected: Inspecting products $5,010 4,690 Setting up equipment Machining 6,370 Moving materials 1,340 Required: 1. Calculate the consumption ratios for the four drivers. Round your answers to two decimal places. Scented Cards Regular Cards Inspection hours 1.57 X 2.75 X Setup hours 1.12 X Machine hours 3.67 X 1.37 x Number of moves 1.21 x 4.2 X 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 27% of the overhead, and regular cards would receive 73% of the overhead. Yet, the scented cards consume well over 64% of the non-machine related overhead. Thus, the Scented cards are undercosted X and the Regular cards are overcosted X This inaccuracy can adversely affect many decisions, including pricing, keep or drop, and cost- volume-profit. 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 27% of the overhead, and regular cards would receive 73% of the overhead. Yet, the scented cards consume well over 64% of the non-machine related overhead. Thus, the Scented cards are undercosted X and the Regular cards are overcosted x 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 22.77 per inspection hour Setting up equipment 52.11 per setup hour Machining 8.27 per machine hour Moving materials 4.25 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. 250.5 X inspection hours $ Feedback Check My Work The consumption ratio is the percentage of time spent per product on each activity, Product 1 Consumption Ratio: Product 1 hours (activity 1) / (Product 1 hours (activity 1) + Product 2 hours (activity 1)) Determine the cost per activity by dividing the cost data per activity by the total number of hours per activity, Work backwards to determine total hours in an activity Cost / Rate Total hours
