Question

Rainbow Spray Paints, Inc. 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 the enamel paint line is $98,000. In an attempt to more equitably distribute quality-control costs, Rainbow is considering activity-based costing. The monthly data shown in the following chart have been gathered for the enamel paint line.


Required:
1. Calculate the monthly quality-control cost to be assigned to the enamel paint 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 enamel paint line with respect to quality-control costs? By what amount?
(CMA,adapted)


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  • CreatedApril 22, 2014
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