Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials. Under its current costing system, Vineyard aggregates all operating costs of $1,428,000 into a single overhead cost pool. Vineyard calculates a rate per test-hour of $17 ( $1,428,000/84,000 total test-hours). HT uses 52,000 test-hours, and ST uses 32,000 test-hours. Gary Savarese, Vineyard's controller, believes that there is enough variation in test procedures and cost structures to establish separate costing and billing rates. The market for test services is very competitive and without this information, any miscosting and mispricing could cause Vineyard to lose business. Savarese breaks down Vineyard's costs into four activity-cost categories. (Click the icon to view the activity-cost categories.) Requirements Calculate the cost of each activity and the total cost of the heat testing and stress testing 1. Direct-labour costs, $326,000 These costs can be directly traced to HT, $225,000, and ST, $101,000 2. Equipment-related costs (rent, maintenance, energy, and so on), $504,000 These costs are allocated to HT and ST on the basis of test-hours 3. Setup costs, $350,000. These costs are allocated to HT and ST based on the number of setup-hours required HT requires 13,000 setup-hours, and ST requires 4,500 setup-hours. 4. Costs of designing tests, $248,000. These costs are allocated to HT and ST based on the time required to design the tests HT requires 2,500 hours, and ST requires 1,500 hours Definition Requirements 1. Classify each activity costs as output unit-level, batch-level, productor service-sustaining, or facility-sustaining. Explain your answers Calculate the cost per test-hour for HT and ST using activity-based costing (ABC). Explain briefly the reasons why these numbers differ from the $17 per test-hour that Vineyard calculated using its existing costing system 3. Explain the cost differences and the accuracy of the product costs calculated using the existing and the ABC systems. How might Vineyard's management use the cost hierarchy and ABC information to manage its business better