Problem 1: Urban Elite Cosmetics has used a traditional cost of accounting system to apply quality-control costs uniformaly to all products at a rate of 14.5 percent of direct-labor cost. Monthly direct-labor cost for Satin Sheen makeup is $27,500. In an attempt to more equitable distribute quality-control costs, management is considering active-based costing. The monthly data shown in the following chart have been gathered for Satin Sheen makeup.
| Active Cost Pool |
|
Cost Driver |
|
Pool Rates |
Quanity of Driver
for Satin Sheen |
|
|
|
|
|
|
|
|
| Incoming material inspection |
Type of material |
$11.50 per type |
12 types |
| In-process inspection |
|
Number of units |
.14 per unit |
17,500 |
| Product certification |
|
Product certification |
77.00 per order |
25 orders |
Required
1. Calculate the monthly quality-control cost to be assigned to the Satin Sheen product line under each of the following product-costing systems. (round to the nearest dollar.)
a. Traditional system, which assigns overhead on the basis of direct-labor cost
b. Activity-based costing
2. Does the traditional product-costing systems overcost or undercost the Satin Sheen line with respect to quality-control costs? By what amount?
Problem 2: Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recent hired controller for the firm is about to apply the high-low method in estimating the company's energy cost behavior. The following costs were incurred during the past 12 months:
| Month |
|
|
Pints of
Applesauce |
|
Energy cost |
|
|
|
|
|
|
| January |
|
|
35000 |
|
23400 |
| February |
|
|
21000 |
|
22100 |
| March |
|
|
22000 |
|
22000 |
| April |
|
|
24000 |
|
22450 |
| May |
|
|
30000 |
|
22900 |
| June |
|
|
32000 |
|
23350 |
| July |
|
|
40000 |
|
28000 |
| August |
|
|
30000 |
|
22800 |
| September |
|
30000 |
|
23000 |
| October |
|
|
28000 |
|
22700 |
| November |
|
|
41000 |
|
24100 |
| December |
|
|
39000 |
|
24950 |
Required:
1. Use the high-low method to estimate the company's energy cost behavior and express it in equation form.
2. Predict the energy cost for a month in which 26,00 pints of applesauce are procuced.