Question
Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Springfield aggregates all
Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system,
Springfield
aggregates all operating costs of
$1,360,000
into a single overhead cost pool.
Springfield
calculates a rate per test-hour of
$16
($1,360,000
85,000
total test-hours). HT uses
55,000
test-hours, and ST uses
30,000
test-hours. Gary
Lawler,
Springfield'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
Springfield
to lose business.
Lawler
divides
Springfield's
costs into four activity-cost categories.
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