Help Njombe Corporation manufactures a variety of products. In the past, Njombe
ID: 2329843 • Letter: H
Question
Help Njombe Corporation manufactures a variety of products. In the past, Njombe has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200% Sensing that this system was distorting costs and selling prices, Njombe has decided to switch to an activity-based costing system for manufacturing overhead costs that uses the three activity cost pools listed below. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year are as follows: Pool Number of00S50 setups Machine Setups Quality Control Number of Other Overhead 400 180,000 inspections Machine 30,000 hours $480,000 Information (on a per unit basis) related to three popular products at Njombe are as follows 136 $540 Model #58 $310 Direct material cost $400Explanation / Answer
Answer: $4080
Under the traditional system , selling price of one unit of Model #36 = 4080
Working notes for the above answer is as under
Direct material
540
Direct Labor
600
Overhead (150%x810)
900
Product Cost
2040
Add: 100% of product cost
2040
Selling price
4080
Direct material
540
Direct Labor
600
Overhead (150%x810)
900
Product Cost
2040
Add: 100% of product cost
2040
Selling price
4080
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