Reference no: EM132385777
Question
Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 18 percent of direct-labor cost.
Monthly direct-labor cost for Satin Sheen makeup is $105,000. 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.
Activity Cost Pool Cost Driver Pool Rates Quantity of Driver for Satin Sheen
Incoming material inspection Type of material $ 18.00 per type 20 types
In-process inspection Number of units 0.32 per unit 40,000 units
Product certification Per order 141.00 per order 60 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?
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