Question
Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 17 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 17 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $104,000. 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 | $ | 29.00 | per type | 29 | types | |
In-process inspection | Number of units | 0.31 | per unit | 39,000 | units | ||
Product certification | Per order | 158.00 | per order | 55 | 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?
Assigned Cost a. Traditional system b. Activity-based costing Traditional system by
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started