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Determine the selling prices of each model above under the previous traditional overhead allocation system

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Njombe Corporation manufactures a variety of products. In the past, Njombe has been using a traditional overhead allocation system based on applying overhead at a rate of 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200% (i.e., double the total product cost). Sensing that this traditional system was distorting costs and selling prices, Njombe has decided to switch to an activity-based costing system using three cost pools. Information on these cost pools for next year is as follows;Budgeted level Budgeted;Activity cost pool Cost driver for cost driver 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 $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;Selling prices under the new system are still going to continue to be set by multiplying total product cost by 200%.;25. (7 points) Determine the selling prices of each model above under the previous traditional overhead allocation system. Show your computations and clearly label your final answers in the box below.;26. (8 points) Determine the selling prices of each model above under the new activity-based costing system. Show your computations and clearly label your final answers in the box below.;27. (5 points) Refer back to questions 25 and 26. Did Njombe make a wise decision by changing to an activity-based costing system? Why or why not? Indicate your response in the box below.

 

Paper#20890 | Written in 18-Jul-2015

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