Reference no: EM131563104

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:

Activities	Activity Measure	Expected Activity	Estimated Overhead Cost
Machine setups	Number of setups	400	$150,000
Quality control	Number of inspections	1,500	$180,000
Other overhead	Machine hours	30,000	$480,000

 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	$400	$4540	$310
Direct labor cost	$810	$600	$220
Number of setups	2	3	1
Number of inspections	1	3	1
Number of machine hours	4	8	10

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