Milton Test Laboratories does heat testing(HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costingsystem, Milton aggregates all operating costs of $1,330,000 into a single overhead cost pool. Milton calculates a rate pertest-hour of $14 ($1,330,000 / 95,000 total test-hours). HT uses 63,000 test-hours, and ST uses 32,000 test-hours. Gary Savarese, Miltons 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 thisinformation, any miscosting and mispricing of its services could cause Milton to lose business. Savarese divides Miltons costs into four activity-cost categories.

Requirement 1. Classify each activity cost as output unit-level, batch-level, product or service-sustaining, or facility-sustaining. Explain each answer. Cost Item Cost-type a. Direct labor b. Equipment-related costs (rent, maintenance, energy, etc.) C. Setup costs d. Costs of designing tests * Data Table * Requirements - X 1. Classify each activity cost as output unit-level, batch-level, productor 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 $14 per test-hour that Milton 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 Milton's management use the cost hierarchy and ABC information to better manage its business? a. Direct-labor costs, $269,000. These costs can be directly traced to HT, $189,000, and ST, $80,000 b. Equipment-related costs (rent, maintenance, energy, and so on), $475,000. 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 13,000 setup-hours, and ST requires 4,500 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 2,500 hours, and ST requires 1,500 hours. Print Done Print Done