Question

Acoma Co. has identified one of its cost pools to be quality control and has assigned $125,000 to that pool. Number of inspections has been chosen as the cost driver for this pool; Acoma performs 25,000 inspections annually. Suppose Acoma manufactures two products that consume 10,000 (Product 1) and 15,000 (Product 2) inspections each. Assume that Acoma manufacturers only the two products mentioned and they consume 100 percent of the company’s quality inspections.

Required:
Using activity proportions, determine how much quality control cost will be assigned to each of Acoma’s product lines.

Answer 1

Acoma Co.

Quality control cost assigned to each product line:

Product 1 Product 2

Overhead assigned $50,000 $75,000

Step-by-step explanation:

a) Data and Calculations:

Estimated annual cost of quality control = $125,000

Estimated annual inspections = 25,000

Overhead rate per inspection = $5 ($125,000/25,000)

Product 1 Product 2

Inspections consumed 10,000 15,000

Overhead rate/inspection $5 $5

Overhead assigned $50,000 $75,000