Hopkinton Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Hopkinton aggregates all operating costs of $1,190,000 into a single overhead cost pool. Hopkinton calculates a rate per test-hour of $17 ($1,190,000 70,000 total test-hours). HT uses 40,000 test-hours, and ST uses 30,000 test-hours. Gary Maloney, Hopkinton'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 Hopkinton to lose business. Maloney divides Hopkinton's costs into four activity-cost categories. b. C. d. (Click the icon to view the activity-cost categories.) Direct-labor costs, $126,000. These costs can be directly traced to HT, $90,000, and ST, $36,000. Equipment-related costs (rent, maintenance, energy, and so on), $350,000. These costs are allocated to HT and ST on the basis of test-hours. Setup costs, $430,000. These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires 13,600 setup-hours, and ST requires 3,600 setup-hours. Costs of designing tests, $264,000. These costs are allocated to HT and ST on the basis of the time required for designing the tests. HT requires 3,000 hours, and ST requires 1,400 hours. Requirement 1. Classify each activity cost as output unit-level, batch-level, product- or service-sustaining, or facility-sustaining. Explain each answer. a. Direct labor Cost Item b. Equipment-related costs (rent, maintenance, energy, etc.) c. Setup costs d. Costs of designing tests Cost-type Output unit-level Output unit-level Batch-level Service-sustaining Output unit-level costs are related to the number of units tested; required for each unit tested. Batch-level costs are related to a group of units of the service. They are not related to the number of units tested. Service-sustaining costs are costs used to support individual services regardless of the number of units or batches tested. Facility-sustaining costs are costs that can not be traced to individual services but support the company as a whole. Requirement 2. Calculate the cost per test-hour for HT and ST. Explain briefly the reasons why these numbers differ from the $17 per test-hour that Hopkinton calculated using its simple costing system. First, determine the formula used to calculate the cost for each activity in each test type. Activity rate Activity hours per test type = Cost per activity Requirement 2. Calculate the cost per test-hour for HT and ST. Explain briefly the reasons why these numbers differ from the $17 per test-hour that Hopkinton calculated using its simple costing system. First, determine the formula used to calculate the cost for each activity in each test type. Activity rate Activity hours per test type = Cost per activity Calculate the cost of each activity and the total cost of the heat testing and stress testing. Heat Test (HT) Stress Test (ST) Total Total Cost Cost Direct labor 90,000 Equipment 200,000 Setup 340,000 180,000 Design $ 810,000 Total