Goodmark Company produces two types of birthday cards: scented and regular. Expected product data for the coming year are given below. Overhead costs are identified by activity.

Scented Cards Regular Cards Total

Units produced 20,000 200,000 -

Prime costs $160,000 $1,500,000 $1,660,000

Direct labor hours 20,000 160,000 180,000

Number of setups 60 40 100

Machine hours 10,000 80,000 90,000

Inspection hours 2,000 16,000 18,000

Number of moves 180 120 300

Overhead costs:

Setting up equipment $240,000

Moving materials 120,000

Machine 200,000

Inspecting products 160,000

Calculate the activity consumption ratios for Scented cards (round to two decimal places).

Setups:

Moving materials:

Machining:

Inspection:

Setups: $ 144,000

Moving materials: $72000

Machining: $22,200

Inspection: $17,777.78

Explanation:

Goodmark Company

Scented Cards Regular Cards Total

Units produced 20,000 200,000 -

Prime costs $160,000 $1,500,000 $1,660,000

Direct labor hours 20,000 160,000 180,000

Number of setups 60 40 100

Machine hours 10,000 80,000 90,000

Inspection hours 2,000 16,000 18,000

Number of moves 180 120 300

First we find the rate by dividing the overhead costs with the corresponding cost driver as follows.

Overhead costs: Rate

Setting up equipment $240,000 = Setting up equipment / Number of setups=$240,000/100=2400

Moving materials 120,000 = Moving materials/Number of moves

120,000/300=400

Machine 200,000 = Machining/Machine hours

= 200,000 / 90,000=2.222

Inspecting 160,000 = Inspection/Inspection hours

= 160,000/18000 = 8.89

Now we find the overhead applied to the scented cards by multiplying the rate to the corresponding overhead activity of the scented cards.

Activity Rate Scented Cards

Setups: 2400 2400*60=$ 144,000

Moving materials: 400 400*180 = $72000

Machining: 2.22 2.22*10,000=$22,200

Inspection: 8.89 8.89*2000 = $17,777.78