In comparing the traditional system with the activity-based costing system, which of Njombe’s Models… 1 answer below »

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:

Activity Cost Pool

Estimated Activity

Estimated Overhead Cost

Machine Setups

400 Number of setups

$150,000

Quality Control

1,500 Number of inspections

$180,000

Other Overhead

30,000 Machine hours

$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

$540

$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

In comparing the traditional system with the activity-based costing system, which of Njombe’s Models had higher unit product costs under the traditional system?

A) #19

B) #58

C) #19 and #58

D) #36 and #58