Orchard Test Laboratories does Flu testing (FT) and Virus testing (VT) on materials and operates at capacity. Under its current simple costing system, Orchard aggregates all operating costs of $2,190,000 into a single overhead cost pool. Orchard calculates a rate per test-hour of $27 ($2,190,000, 100,000 total test-hours). FT uses 60,000 test-hours. and VT uses 40,000 test-hours. Gary Celeste, Orchard's controller, believes that there is enough variation in test procedures and cost structures to establish separate costing and billing rates for FT and VT The market for test services is becoming competitive. Without this information, any mis costing and mispricing of its services could cause Orchard to lose business. Celeste divides Orchard costs into four activity-cost categories. a. Direct-labor costs, $430,000. These costs can be directly traced to FT, $300,000, and VT, $130,000. b. Equipment-related costs (rent, maintenance, energy, and so on), $500,000. These costs are allocated to FT and VT on the basis of test-hours. C. Setup costs, $540,000. These costs are allocated to FT and VT on the basis of the number of setup-hours required. FT requires 15,400 setup-hours, and ST requires 5,600 d. Costs of designing tests, $720,000. These costs are allocated to FT and VT on the basis of the time required for designing the tests. FT requires 5,400 hours, and VT requires 1,600 hours. Required: 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 FT and VT. Explain briefly the reasons why these numbers differ from the $47 per test-hour that Orchard 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 Info Tech's management use the cost hierarchy and ABC information to better manage its business? (1 M)