Question 3: ABC costing Dr Strange Ltd produces premium bed linen. It uses a traditional cost accounting system to apply quality control costs uniformly to all products with a predetermined overhead rate of 16 per cent of direct labour cost. Monthly direct labour cost is $147 000. To distribute quality control costs more equitably, Dr Strange Ltd is considering activity-based costing. The following data relates to monthly quality control costs for its satin sheet range: Activity Activity driver Cost per unit of activity driver Quantity of activity driver Incoming material inspection Type of material $34.50 per type 24 types In-process inspection Number of units $0.42 per unit 35 000 units Product certification Number of orders $216 per order 50 orders Required: (please round up to zero decimals unless otherwise stated) 1. (a) Calculate the monthly quality control cost (total) to be assigned to the Manchester product line under traditional system that assigns overhead on the basis of direct labour costs (b) The company produces 500 units of Manchester sheets per month. What is the manufacturing overhead per unit? 2. (a) Calculate the monthly quality control cost (total) to be assigned to the Manchester product line under activity-based costing. The company used 22 types of material, inspected 31000 units and processed 40 orders. (b)What is the overhead per unit under activity based costing? 3. Direct materials required for one Manchester is $27. Direct labor assigned to each Manchester sheet is $73. What is the product cost per unit under the traditional method of costing? What is the product cost per unit under activity based costing? 4. Does the traditional product costing system overcost or undercost the satin sheet product line with respect to quality control costs? By what amount and why?