Question

cks, 50 Saved Help Save & Exit 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 $99.000. 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 Incoming material inspection In-process inspection Product certification Cost Driver Type of material Number of units Per order Pool Rates 24.00 per type 0.26 per unit 148.00 per order Quantity of Driver for Satin Sheen 24 types 34,000 units 75 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 b. Activity-based costing Required 2 >

Answer 1

Requirement 1a: Compute the monthly quality-control cost under traditional product cost system as follows

            Cost assigned = Direct labor cost × 18%

                                    = $99,000 × 18%

                                    = $17,820

Requirement 1b: Compute the monthly quality-control cost under activity-based system as follows

Activity	Rate	×	Quantity	=	Cost Assigned
Material Inspection	$24.00	×	34	=	$816.00
Process Inspection	$0.26	×	34,000	=	$8,840.00
Product Certification	$148.00	×	75	=	$11,100.00
Total Cost Assigned					$20,756.00

Requirement 2: Traditional product-costing system undercosted the product line by $2,936 ($20,756 − $17,820).