Hopkinton Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple frosting system. Hopkinton aggregates all operating costs of $1,300,000 into a single overhead cost pool. Hopkinton calculates a rate per two-hour of $13 (1,300,000/100,000 total test hours). HT uses 60,000 test hours, and ST uses 40,000 test hours. Gary O'Laughlin, 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 the information, any mispricing of its services could cause Hopkinton to pose business. O'Laughlin divides Hopkinton into four activity cost categories.

1. Classify each activity cost as output multi-level, batch level, product or service sustaining, or facility sustaining. Explain each answer. 2. Calculate the cost per test hour for HT and ST. Explain briefly the reasons why these numbers differ from the $13 per test hour that Hopkinton calculated using it's simple costing system. 3. Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. How might Hopkinton management use the cost hierarchy and ABC information to better manage its business?

Data Table a. Direct-labor costs, $243,000. These costs can be directly traced to HT, $183,000, and! ST, $60.000 b. Equipment-related costs (rent, maintenance, energy, and so on), $400,000. These costs are allocated to HT and ST on the basis of test-hours. c. Setup costs, $385,000. These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires 13,500 setup-hours, and ST requires 4,000 setup-hours. d. Costs of designing tests, $252,000. These costs are allocated to HT and ST on the basis of the time required to design the tests. HT requires 2,800 hours, and ST requires 1,400 hours. Print Done