Exercise 7-37Consumption Ratios; Activity Rates

Bienestar 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

180

120

Setup hours

70

30

Machine hours

160

480

Number of moves

480

120

The following activity data have been collected:

Inspecting products	$7,500
Setting up equipment	4,750
Machining	5,120
Moving materials	2,700

Required:

• 1.Calculate the consumption ratios for the four drivers (round to two decimal places).
• 2.CONCEPTUAL CONNECTIONIs there evidence of product diversity? Explain the significance of product diversity for decision making if the company chooses to use machine hours to assign all overhead.
• 3.Calculate the activity rates that would be used to assign costs to each product (round to two decimal places).
• 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?