Question
Urban Elite Cosmetics has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 16 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 16 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $97,000. 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 | $ | 22.00 | per type | 22 | types | |
In-process inspection | Number of units | 0.24 | per unit | 32,000 | units | ||
Product certification | Per order | 144.00 | per order | 65 | 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?
Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under the Traditional product-costing system and the Activity-based product-costing system.
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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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