Maynard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity Under its current simple costing system, Maynard aggregates all operating costs of $975,000 into a single overhead cost pool Maynard calculates a rate per test hour of $13 ($975,000 75,000 total test hours) HT uses 55,000 test hours, and ST uses 20,000 test hours Gary O'Loughlin, Maynard'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 Maynard to lose business O'Loughlin divides Maynard's costs into four activity cost categories data a Direct labor costs, $217,000 These costs can be directly traced to HT, $165,000, and ST, $52,000 b Equipment related costs (rent, maintenance, energy, and so on), $375,000 These costs are allocated to HT and ST on the basis of test hours c Setup costs, $375,000 These costs are allocated to HT and ST on the basis of the number of setup hours required HT requires 10,000 setup hours, and ST requires 5,000 setup hours d Costs of designing tests, $248,000 These costs are allocated to HT and ST on the basis of the time required to design the tests HT requires 2,000 hours, and ST requires 2,000 hours 1 Classify each activity cost as output unit 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 Maynard calculated using its simple costing system 3 Explain the accuracy of the product costs calculated using the simple costing system and the ABC system How might Maynard's management use the cost hierarchy and ABC information to better manage its business

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Maynard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Maynard aggregates

Maynard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Maynard aggregates all operating costs of $975,000 into a single overhead cost pool. Maynard calculates a rate per test-hour of $13 ($975,000/75,000 total test-hours). HT uses 55,000 test-hours, and ST uses 20,000 test-hours. Gary O'Loughlin, Maynard'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 Maynard to lose business. O'Loughlin divides Maynard's costs into four activity-cost categories.

data

a.	Direct-labor costs, $217,000. These costs can be directly traced to HT, $165,000, and ST, $52,000.
b.	Equipment-related costs (rent, maintenance, energy, and so on), $375,000. These costs are allocated to HT and ST on the basis of test-hours.
c.	Setup costs, $375,000. These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires 10,000 setup-hours, and ST requires 5,000 setup-hours.
d.	Costs of designing tests, $248,000. These costs are allocated to HT and ST on the basis of the time required to design the tests. HT requires 2,000 hours, and ST requires 2,000 hours

1.	Classify each activity cost as output unit-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 Maynard calculated using its simple costing system.
3.	Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. How might Maynard's management use the cost hierarchy and ABC information to better manage its business?