Actinity based coasting

Question Two: Micro Products, Inc., uses a traditional product costing system to assign overhead costs uniformly to all products. To meet Food and Drug Administration (FDA) requirements and to assure its customers of safe, sanitary, and nutritious food, Micro engages in a high level of quality control. Micro assigns its quality control overhead costs to all products at a rate of 25% of direct labour costs. Its direct labour cost for the month of June for its dessert line is OMR60.000. In response to repeated requests from its financial vice president, Micromanagement agrees to adopt activity-based costing. Data relating to the dessert line for the month of Julie are as follows. Activity Cost Pools Cost Drivers Overhead Rate Number of Cost Drivers Used per Activity 5,500 pounds Number of pounds 0.60 OMR per pound Inspections of material received In-process inspections FDA certification Number of servings 0.40 OMR per serving 12,000 servings Customer orders 1 5 OMR per order 550 orders a. Compute the quality control overhead cost to be assigned to the dessert product line for the month of June using (1) the traditional product costing system (direct labour cost is the cost driver), and (2) activity-based costing. (2 marks) b. By what amount does the traditional product costing system under-cost or over-cost the dessert line? (1 mark) Total: 3 marks