Stylish Manchester Ltd has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 16 per cent of direct labor cost. Monthly direct labor cost for the Satin Sheet range is $147 000. In an attempt to distribute quality control costs more equitably control costs for its Satin Sheet range:

Required:
1. Calculate the monthly quality control cost to be assigned to the Satin Sheet product line under each of the following approaches:
(a) Traditional system which assigns overhead on the basis of direct labour costs.
(b) Activity-based costing.
2. Does the traditional product costing system over-cost or under-cost the Satin Sheen product line with respect to quality-control costs? By what amount and why?

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Cost per unit of activity driver Quantity of activity driver 24 types 35 000 units Activity Activity driver Type of material $34.50 per type Number of units Per order Incoming material inspection In-process inspection Product certification $0.42 per unit 50 orders $216 per order