Zone Enterprises produces wireless components used in telecommunications equipment. One of the most important features of the company’s new just-in-time production process is quality control. Initially, a traditional allocation method was used to assign the costs of quality control to products; all these costs were included in the plant’s overhead cost pool and allocated to products based on direct labor dollars. Recently, the firm has implemented an activity-based costing system. The activities, cost drivers, and rates for the quality control function are summarized below, along with cost allocation information from the traditional method. Also shown is information related to one order, Order HL14. Compute the quality control cost that would be assigned to the order under both the traditional method and the activity-based costing method.

Traditional costing method:

Quality control costs were assigned at a rate of 12 percent of direct labor dollars. Order HL14 was charged with $9,350 of direct labor costs.

Activity-based costing method:

 

Activity Incoming materials inspection In-process inspection Tool and gauge control Product certification Activity Cost Driver Types of materials used Number of products Number of processes per cell Per order Activity Usage for Cost Rate $17.50 per type of material used $.06 per product $26.50 per process per cell $94.00 per order Order HL14 17 types of materials 2,400 products 11 processes I order