Question: New Rage Cosmetics uses a traditional cost accounting system to allocate

New-Rage Cosmetics uses a traditional cost accounting system to allocate quality control costs uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for Satin Sheen makeup is $27,500. In an attempt to more equitably distribute quality control costs, New-Rage is considering activity-based costing. The following monthly data have been gathered for Satin Sheen makeup.

Incoming material inspection:
Cost driver—type of material
Cost allocation rate—$11.50 per type of material
Quantity—12 types of material
In-process inspection:
Cost driver—number of units
Cost allocation rate—$0.14 per unit
Quantity—17,500 units
Product certification:
Cost driver—per order
Cost allocation rate—$77 per order
Quantity—25 orders

A. Calculate the amount of quality control cost assigned to each order of Satin Sheen makeup using:
1. Activity-based costing (Hint: Total all the ABC costs for one month and divide by the number of orders.)
2. Traditional cost accounting
B. Explain the difference in quality control costs assigned under the two methods.

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  • CreatedJanuary 26, 2015
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