21
12) 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 Pool
Activity Measure
Estimated
Activity
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
Under the activity-based costing 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
13) 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 Pool
Activity Measure
Estimated
Activity
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
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
14) Look Manufacturing Corporation has a traditional costing system in which it applies
manufacturing overhead to its products using a predetermined overhead rate based on direct
labor-hours (DLHs). The company has two products, N06D and M09K, about which it has
provided the following data:
N06D
M09K
Direct materials per unit
$
17.70
$
62.50
Direct labor per unit
$
5.00
$
16.00
Direct labor-hours per unit
0.50
1.60
Annual production (units)
40,000
15,000
The company’s estimated total manufacturing overhead for the year is $2,532,200 and the
company’s estimated total direct labor-hours for the year is 44,000.
The company is considering using a variation of activity-based costing to determine its unit
product costs for external reports. Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures
Estimated
Overhead Cost
Supporting direct labor (DLHs)
$
880,000
Setting up machines (setups)
376,200
Parts administration (part types)
1,276,000
Total
$
2,532,200
Expected Activity
N06D
M09K
Total
DLHs
20,000
24,000
44,000
Setups
1,408
1,100
2,508
Part types
1,540
1,012
2,552
The manufacturing overhead that would be applied to a unit of product N06D under the
company’s traditional costing system is closest to:
A) $28.78
B) $10.00
C) $63.31
D) $34.53
15) Look Manufacturing Corporation has a traditional costing system in which it applies
manufacturing overhead to its products using a predetermined overhead rate based on direct
labor-hours (DLHs). The company has two products, N06D and M09K, about which it has
provided the following data:
N06D
M09K
Direct materials per unit
$
17.70
$
62.50
Direct labor per unit
$
5.00
$
16.00
Direct labor-hours per unit
0.50
1.60
Annual production (units)
40,000
15,000
The company’s estimated total manufacturing overhead for the year is $2,532,200 and the
company’s estimated total direct labor-hours for the year is 44,000.
The company is considering using a variation of activity-based costing to determine its unit
product costs for external reports. Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures
Estimated
Overhead Cost
Supporting direct labor (DLHs)
$
880,000
Setting up machines (setups)
376,200
Parts administration (part types)
1,276,000
Total
$
2,532,200
Expected Activity
N06D
M09K
Total
DLHs
20,000
24,000
44,000
Setups
1,408
1,100
2,508
Part types
1,540
1,012
2,552
The manufacturing overhead that would be applied to a unit of product M09K under the activity-
based costing system is closest to:
A) $76.73
B) $92.08
C) $11.00
D) $168.81
31
16) Bullie Manufacturing Corporation has a traditional costing system in which it applies
manufacturing overhead to its products using a predetermined overhead rate based on direct
labor-hours (DLHs). The company has two products, D31X and U75X, about which it has
provided the following data:
D31X
U75X
Direct materials per unit
$
29.20
$
47.40
Direct labor per unit
$
1.10
$
23.10
Direct labor-hours per unit
0.10
2.10
Annual production (units)
35,000
15,000
The company’s estimated total manufacturing overhead for the year is $1,147,650 and the
company’s estimated total direct labor-hours for the year is 35,000.
The company is considering using a variation of activity-based costing to determine its unit
product costs for external reports. Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures
Estimated
Overhead Cost
Assembling products (DLHs)
$
140,000
Preparing batches (batches)
241,150
Axial milling (MHs)
766,500
Total
$
1,147,650
D31X
U75X
Total
Assembling products
3,500
31,500
35,000
Preparing batches
560
1,295
1,855
Axial milling
1,540
1,015
2,555
Required:
a. Determine the manufacturing overhead cost per unit of each of the company’s two products
under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company’s two products
under activity-based costing system.