(Appendix 2A) 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:
Information (on a per unit basis) related to three popular products at Njombe are as follows:

-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

Question

(Appendix 2A) 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:
  Information (on a per unit basis) related to three popular products at Njombe are as follows:
 
-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

Quizplus · Accepted Answer

The activity rates are computed as follows:
 11ea7761_198a_c85d_81a5_9bfaf31195f6_TB2580_00 The overhead cost charged to Model #19 is:
 11ea7761_198a_c85e_81a5_235d74e449e3_TB2580_00 The overhead cost charged to Model # 36 is:
 11ea7761_198a_c85f_81a5_c73161b8346d_TB2580_00 The overhead cost charged to Model # 58 is:
 11ea7761_198a_ef70_81a5_bfca21d698f7_TB2580_00 Traditional product costing overhead cost:
 11ea7761_198a_ef71_81a5_af90e81aceae_TB2580_00 The overhead costs are the only difference in unit product costs between the traditional costing system and the activity-based costing system. Therefore, Model #19 is the only product that has a higher unit product cost under the traditional system.

(Appendix 2A) Njombe Corporation Manufactures a Variety of Products