How is the cost hierarchy helpful to Harrison in managing its business? 6-12 ABC, cost hierarchy, service. (CMA, adapted) Ayer Test Laboratories does heat testing stress testing (ST on materials and operates at capacity. Under its current simple costing system, Ayer aggregates all operating costs of $1,330,000 into a single overhead cost pool. Ayer calculates a rate per test-hour of $14 ($1,330,000 95,000 total test-hours). HT uses 55,000 test-hours, and ST uses 40,000 test-hours. Gary Daley, Ayer's controller, believes that there is enoug 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 Ayer to lose business. Daley divides Ayer's costs into four activity-cost categories. h variation in test procedures and cost structures to establish a. Direct-labor costs, $222,000. These costs can be directly traced to HT, $155,000, and ST, $67,000 b. Equipment-related costs (rent, maintenance, energy, and so on), $475,000. These costs are allocated to c. Setup costs, $385,000.These costs are allocated to HT and ST on the basis of the number of setup-hours d. Costs of designing tests, $248,000. These costs are allocated to HT and ST on the basis of the time required 1. Classify each activity cost as output unit-level, batch-level, product- or service-sustaining, or facility- 2. Calculate the cost per test-hour for HT and ST using ABC. Explain briefly the reasons why these numbers 3. Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. and ST on the basis of test-hours. required. HT requires 13,000 setup-hours, and ST requires 4,500 setup-hours. for designing the tests. HT requires 3,000 hours, and ST requires 1,000 hours. sustaining. Explain each answer. differ from the $14 per test-hour that Ayer calculated using its simple costing system. How might Ayer's management use the cost hierarchy and ABC information to better manage its business