Question
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
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 | Cost Driver | Pool Rates | Quantity of Driver for Satin Sheen | ||||
Incoming material inspection | Type of material | $ | 24.00 | per type |
| 24 | types |
In-process inspection | Number of units |
| 0.26 | per unit |
| 34,000 | units |
Product certification | Per order |
| 148.00 | per order |
| 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?
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