Cost-plus and market-based pricing. (CMA, adapted) Best Test Laboratories evaluates the 2. HTTt estp ool labour costs, reaction of materials to extreme increases in temperature. Much of the company’s early

$186,000 growth was attributable to government contracts. Recent growth has come from diversification and expansion into commercial markets. Environmental testing at Best Test now includes:

Currently, all the budgeted operating costs are collected in a single overhead pool. All the estimated testing hours are also collected in a single pool. One rate per test-hour is used for all five types of testing. This hourly rate is marked up by 40% to recover administrative costs, taxes, and profit in the selling price.
Rick Shaw, Best ‘Test’s controller, believes that there is enough variation in the test procedures and cost structure to establish separate costing and billing rates. He also believes that the inflexible rate structure currently being used is inadequate in today’s competitive environment. After analyzing the following data, he has recommended new rates for Best 634 | cuapter 12 ‘Test’s upcoming fiscal year. The budgeted total test laboratory costs for the coming year are

Shaw has determined the resource usage by test type in the following table:

REQUIRED 1. Compute the single-pool hourly cost and hourly billing rate for Best Test Laboratories.
2. Compute the five separate hourly billing rates for Best Test Laboratories.
3. Discuss what effect the new cost-plus method will have on the pricing structure for each of the five test types. Given the competitors’ hourly billing rates, how might Best Test modify its pricing?
4. In general, identify at least three other internal or external factors that influence pricing structure.LO1

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Heat testing (HTT) Air turbulence testing (ATT) Stress testing (SST) Arctic condition testing (ACT) Aquatic testing (AQT)