Chapter 4, Problem 4CE

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

There are four activities: machining, setting up, testing, and purchasing.

Required:

1. 1. Calculate the activity consumption ratios for each product.
2. 2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted?
3. 3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?