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

question 12

Multiple Choice

(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:

-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

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Definitions:

Elastic

A term used in economics to describe a situation where the quantity demanded or supplied of a good or service is highly responsive to changes in its price.

Substitutes

Goods or services that can replace each other in use, where an increase in the price of one leads to an increase in demand for the other.

Industry Supply Curve

A graphical representation showing the relationship between the price of a good and the total output of that good supplied by an industry at various price levels.

Barriers To Entry

Barriers to entry are obstacles that make it difficult for new competitors to enter a market, including high costs, strict regulations, and established brand loyalty.