Question - 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: Information (on a per unit basis) related to three popular products at Njombe are as follows:
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Activities
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Activity Measure
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Expected Activity
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Estimated Overhead Cost
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Machine setups
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Number of setups
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400
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$150,000
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Quality control
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Number of inspections
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1,500
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$180,000
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Other overhead
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Machine hours
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30,000
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$480,000
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Information (on a per unit basis) related to three popular products at Njombe are as follows:
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Model #19
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Model #36
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Model #58
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Direct material cost
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$400
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$4540
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$310
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Direct labor cost
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$810
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$600
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$220
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Number of setups
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2
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3
|
1
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Number of inspections
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1
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3
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1
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Number of machine hours
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4
|
8
|
10
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Under the traditional system, what would be the selling price of one unit of Model #36?
A. $2,536
B. $2,712
C. $4,080
D. $5,506