Acoma Co. has identified one of its cost pools to be quality control and has assigned $140,400 to that pool. Number of inspections has been chosen as the cost driver for this pool; Acoma performs 30,000 inspections annually. Suppose Acoma manufactures two products that consume 12,600 (Product 1) and 17,400 (Product 2) inspections each. Assume that Acoma manufacturers only the two products mentioned and they consume 100 percent of the company’s quality inspections. Using activity proportions, determine how much quality control cost will be assigned to each of Acoma’s product lines.

Acoma Co.

                                                    Product 1     Product 2

Quality control cost assigned     $58,968        $81,432

Explanation:

a) Data and Calculations:

Cost of quality control = $140,400

Number of annual inspections = 30,000

Cost per inspection = $4.68 ($140,400/30,000)

                                                    Product 1     Product 2     Total

Number of inspections                 12,600          17,400     30,000

Proportion of inspections               42%               58%         100%

Quality control cost assigned   $58,968        $81,432   $140,400

                                   ($4.68 * 12,600)        ($4.68 * 17,400)

                                  (42% * $140,400)       (52% * $140,400)

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