Question

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	130		70
Setup hours	70		10
Machine hours	160		590
Number of moves	210		85

The following activity data has been collected:

Inspecting products	$5,030
Setting up equipment	4,660
Machining	6,310
Moving materials	1,430

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?

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 21% of the overhead, andregular  cards would receive 79% of the overhead. Yet, the scented  cards consume well over 65% of the non-machine related overhead. Thus, the Scented cards are undercosted  , and the Regular cards are overcosted . 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

Answer 1

Answer is given below