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: Activity Cost PoolActivity MeasureEstimated ActivityEstimated Overhead Cost?Machine SetupsNumber of setups400$150,000 ?Quality ControlNumber of
inspections1,500$180,000 ?Other OverheadMachine hours30,000$480,000 ?? Information (on a per unit basis) related to three popular products at Njombe are as follows: Model #19Model #36Model #58Direct 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 Under the activity-based costing system, what would be the selling price of one unit of Model #36?
A. $2,712
B. $2,536
C. $5,506
D. $4,080
Answer: C
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