Question
Orange Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, orange aggregates
Orange Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, orange aggregates all operating costs of $1,200,000 into a single overhead cost pool. Orange calculates a rate per test-hour of $16 (1,200,000/75,000 total test hours). HT uses 50,000 test hours, and ST uses 25,000 test-hours. Gary Celeste, Orange'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 Orange to lose business. Celeste divides Orange's costs into four activity-costs into four activity-cost categories.
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