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Rainbow Spray Paints, Inc. has used a traditional cost accounting system to apply quality control costs Activity-Based Costing: Exercise 5-29 uniformly to all products at
Rainbow Spray Paints, Inc. has used a traditional cost accounting system to apply quality control costs Activity-Based Costing: Exercise 5-29 uniformly to all products at a rate of 18 percent of direct-labor cost. Monthly direct-labor cost for the Quality Control Costs enamel paint line is $110,000. In an attempt to more equitably distribute quality-control costs, Rainbow is considering activity-based costing. The monthly data shown in the following chart have been gathered (LO 5-1,5-2,5-4,5-5) for the enamel paint line. Quantity of Driver Activity Cost Pool Cost Driver Pool Rates for Enamel Paint Incoming material inspection Type of material $30.00 per type 30 types In-process Inspection Number of units 30 per unit... 40,000 units Product certification 60 orders Per order 150.00 per order Required: 1. Calculate the monthly quality control cost to be assigned to the enamel paint 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 enamel paint line with respect to quality control costs? By what amount
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