Stylish Manchester Ltd has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 16 per cent of direct labour cost. Monthly d irect labour cost for the satin sheet range is $147000. In an attempt to distribute quality control costs more equitably, Stylish Manchester is consideri ng activity-based costing. The following data relates to monthly quality control costs for its satin sheet range:

Actlvlty Actlvlty drlver Cost per unlt of actlvlty drlver Quantlty of actlvlty drlver

Incoming material inspection Type of material 34.50 per type 24 types

In-process iospection Number of units 0.42 per unit 35000 units

Prodllct certification Number of orders 216 per order 50 orders

Q:

1. Calculate the monthly quality control cost to be assigned to t he satin sheet product line under each of t he following approaches: (a) traditional system that assigns overhead on t he basis of d irect labour costs (b) activity-based costing.

2. 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?