Management accounting information
Natural Cosmetics Ltd (NCL) has used a conventional 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 Satin Sheen make-up is $98 000. In an attempt to distribute quality control costs more equitably, NCL is considering activity-based costing. The data on the following page relates to monthly quality control costs for Satin Sheen make-up:
| Activity | Cost Driver | Per unit of activity driver | Quantity of activity driver for enamel paint |
| Incoming material inspection | Type of material | $23 per type | 24 types |
| In-process inspection | Number of units | $0.28 per unit | 35000 units |
| Product certification | Pre-order | $144 per order | 50 orders |
Required:
- Calculate the monthly quality control cost to be assigned to the Satin Sheen product line under each of the following approaches:
(a). Conventional system which assigns overhead on the basis of direct labor costs.
(b). Activity-based costing.
- Does the conventional 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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