Activity-Based Costing; Quality Control Costs
Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 14.5 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $27,500. 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
Activity Cost Pool | Cost Driver | Pool Rates | Quantity of Driver for Satin Sheen |
Incoming material inspection | Type of material | $1 1.50 per type | 12 types |
In-process inspection | Number of units | .14 per unit | 17,500 units |
Product certification | Per order | 7700 per order | 25 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. (Round to the nearest dollar.)
a. Traditional system, which assigns overhead on the basis of direct-labor cost.
b. Activity-based costing.
2. Does the traditional product-costing system overcast or under cost the Satin Sheen product line with respect to quality-control costs? By what amount?
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