Question
Whitman Enterprises uses a traditional-costing system to estimate quality-control costs for its Dragon product line. Costs are estimated at 50% of direct-labor cost, and direct
Whitman Enterprises uses a traditional-costing system to estimate quality-control costs for its Dragon product line. Costs are estimated at 50% of direct-labor cost, and direct labor totaled $863,000 for the quarter just ended. Management is contemplating a change to activity-based costing, and has established three cost pools: incoming material inspection, in-process inspection, and final product certification. Number of parts, number of units, and number of orders have been selected as the respective cost drivers. The following data show the pool rates that have been calculated by the company along with the quantity of driver units for the Dragons:
Pool Rate | Driver Quantities | |||||
$ | 0.80 | per part | 574,490 | parts | ||
0.15 | per unit | 28,300 | units | |||
118.00 | per order | 93 | orders | |||
Required: A. Calculate the quarterly quality-control cost that is allocated to the Dragon product line under Whitmans traditional-costing system. B. Calculate the quarterly quality-control cost that is allocated to the Dragon product line if activity-based costing is used. C. Does the traditional approach under- or overcost the product line? By what amount?
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