Question

Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 17 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $98,000. In an attempt to more equitably distribute quality-control costs, management is considering activity-based costing. The monthly data shown in the following chart have been gathered for Satin Sheen makeup. 1 Quantity of Driver for Satin Sheen 23 types Cost Driver Type of material Nunber of units Activity Cost Pool Incoming material inspection In-process inspection Product certification Pool Rates $ 23.00 per type 0.25 per unit 146.00 per order 025944 33,000 units Per order 70 orders Required: 1. Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under each of the following product- costing systems. a. Traditional system, which assigns overhead on the basis of direct-labor cost b. Activity-based costing. 2. Does the traditional product-costing system overcost or undercost the Satin Sheen product line with respect to quality-control costs? By what amount? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under the Traditional product costing system and the Activity-based product costing system. Assigned Cost a Traditional system

Answer 1

cost to be assigned to the Satin Sheen product line under Traditional system $98,000* 17% = $16,660 1a cost to be assigned to the Satin Sheen product line under activity-based costing system ($23.00 * 23) ($0.25 * 33,000)+ ($146* 70) $18,999 1b assigned cost 1 traditional system $16,660 $18,999 а activity-based costing b $2,339 traditional system undercosts by 2

In case you have any query, kindly ask in comments.