Quality Paints Inc. uses a traditional cost accounting system to apply quality-control costs uniformly to all its products at a rate of 30% of the direct labour cost. The monthly direct labour cost for the varnish paint line is $100,000. The company is considering activity-based costing to apply quality-control costs. The monthly data for the varnish paint line have been gathered as follows:

Instructions
(a) Calculate the monthly quality-control cost to be assigned to the varnish paint line using a traditional costing system that allocates overhead based on the direct labour cost.
(b) Calculate the monthly quality-control cost to be assigned to the varnish paint line using an activity-based costing system.
(c) Comment on the results.

Transcribed Image Text:

Use of Drivers for Varnish Paint Cost Drivers Activity Cost Pools Incoming material insp In-process inspection Product certification Unit Rates 25.00 per type 0.30 per unit 150.00 per order ection Type of materia 50 types Number of units Per order 30,000 units 80 orders