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 using three activity cost pools. 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:
| Activities |
Activity Measure |
Expected Activity |
Estimated
Overhead
Cost |
| Machine setups |
Number of setups |
400 |
$166,000 |
| Quality control |
Number of inspections |
1,500 |
$240,000 |
| Other overhead |
Machine-hours |
30,000 |
$720,000 |
|
Information (on a per unit basis) related to three popular products at Njombe are as follows:
|
|
Model #19
|
Model #36
|
Model #58
|
| Direct material cost |
$800 |
$1,100 |
$620 |
| Direct labor cost |
$1,610 |
$1,240 |
$440 |
| Number of setups |
2 |
3 |
1 |
| Number of inspections |
1 |
3 |
1 |
| Number of machine-hours |
4 |
8 |
10 |
| Under the activity-based costing system, what would be the selling price of one unit of Model #36? |
|
$4,257 |
|
$3,750 |
|
$6,992 |
|
$8,514 |