Larsen, Inc., produces two types of electronic parts and has provided the following data:

PartX12

PartYK7

Total

Units produced

100,000

600,000

-

Direct labour hours

30,000

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

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 the plant wide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plant wide rate? Which product is under Costed?

3.What if the machine hours were used for the plant wide rate? Would this remove the cost distortion of a planT wide rate?