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|
- 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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