Vargus Corporation Has an Activity-Based Costing System with Three Activity

question 136

Essay

Vargus Corporation has an activity-based costing system with three activity cost pools-Processing,Batch Setup,and Other.The company's overhead costs consist of equipment depreciation and indirect labor and are allocated to the cost pools in proportion to the activity cost pools' consumption of resources.Equipment depreciation totals $72,000 and indirect labor totals $8,000.Data concerning the distribution of resource consumption across activity cost pools appear below:
$$\begin{array} { | l | c | c | c | } \hline & \text { Processing } & \text { Batch Setup } & \text { Other } \\\hline \text { Equipment depreciation } & 0.20 & 0.40 & 0.40 \\\hline \text { Indirect labor } & 0.20 & 0.30 & 0.50 \\\hline\end{array}$$
Required:
Assign overhead costs to activity cost pools using activity-based costing.

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Definitions:

Shut-down Price

The price level at which a business's revenue just covers its variable costs, below which it will cease operations.

Average Variable Cost

The average cost of variable inputs (like labor and materials) per unit of output produced.

Minimum

The lowest point on a nonlinear curve, where the slope changes from negative to positive.

Economic Profit

The difference between the total revenue received by a business and the total implicit and explicit costs of a business.