OrangeOrange Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates...
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Accounting
OrangeOrange Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, OrangeOrange aggregates all operating costs of $1,260,000 into a single overhead cost pool.
OrangeOrange
calculates a rate per test-hour of
$ 14
$1,260,000
/ 90,000
total test-hours). HT uses 50,000 test-hours, and ST uses 40,000 test-hours. Gary CelesteCeleste, OrangeOrange's controller, believes
that there is enough variation in test procedures and cost structures to establish separate costing and billing rates for HT and ST. The market for test services is becoming competitive. Without this information, any miscosting and mispricing of its services could cause
a.
Direct-labor costs,
$ 145 comma 000$145,000.
These costs can be directly traced to HT,
$ 100 comma 000$100,000,
andST,
$ 45 comma 000$45,000.
b.
Equipment-related costs (rent, maintenance, energy, and so on),
$ 540 comma 000$540,000.
These costs are allocated to HT and ST on the basis of test-hours.
c.
Setup costs,
$ 300 comma 000$300,000.
These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires
10 comma 00010,000
setup-hours, and ST requires
5 comma 0005,000
setup-hours.
d.
Costs of designing tests,
$ 290 comma 000$290,000.
These costs are allocated to HT and ST on the basis of the time required to design the tests. HT requires
2 comma 5002,500
hours, and ST requires
2 comma 5002,500
hours.
OrangeOrange
to lose business. CelesteCeleste divides OrangeOrange's costs into four activity-cost categories
Requirement 1. Classify each activity cost as output unit-level, batch-level, product- or service-sustaining, or facility-sustaining. Explain each answer.
