Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Vineyard aggregates all operating costs of $1,200,000 into a single overhead cost pool. Vineyard 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 Cook, Vineyard'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 Vineyard to lose business. Cook divides Vineyard's costs into four activity-cost categories. x Data Table Requirements a. Direct-labor costs, $225,000. These costs can be directly traced to HT, $175,000, and ST, $50,000 b. Equipment-related costs (rent, maintenance, energy, and so on), $375,000. These costs are allocated to HT and ST on the basis of test-hours. c. Setup costs, $360,000. These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires 10,000 setup-hours, and ST requires 5,000 setup-hours. d. Costs of designing tests, $240,000. 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 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 HT and ST. Explain briefly the reasons why these numbers differ from the $16 per test-hour that Vineyard 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 Vineyard's management use the cost hierarchy and ABC information to better manage its business? Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacty. Under its current simple costing system, Vineyard aggregates all operating costs of $1,190,000 into a single overhead cost pool. Vineyard calculates a rate per test-hour of $17 (51,190,000 / 70,000 total test-hours). HT uses 40,000 test-hours, and ST uses 30,000 test-hours. Gary Maloney, Vineyard's controller, believes that there is enough variation in test procedures and cost structures to establish separate costing and biling 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 Vineyard to lose business. Maloney divides Vineyard's costs into four activity cost categories Click the icon to view the activity-cost categories.) Read the requirements First, determine the formula used to calculate the cost for each activity in each test type. Activity hours per test type * Cost per activity Calculate the cost of cach activity and the total cost of the heat testing and stress testing. Heat Test (HT) Stress Test (ST) Total Cost Cost Direct labor 90000 2.25 Equipment 200000 5 Setup 350000 Design Total Total Determine the formula to calculate the HT cost per test-hour and enter the amounts to calculate the rate. (Round the rate to the nearest cent.) Total HT costs = HT Cost per test-hour per test-hour Determine the formula to calculate the ST cost per test-hour and enter the amounts to calculate the rate. (Round the rate to the nearest cent.) = ST Cost per test-hour per test-hour The cost per test-hour for HT and ST differs from the cost per test-hour using the simple rate because: Requirement 3. Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. How might Vineyard's management use the cost hierarchy and ABC information to better manage its business? The accuracy of the product costs will be with the ABC system instead of the simple casting system. The ABC product costs will the utilization of resources by both products. Management can use the ABC costs to 7. The cost hierarchy enables management to more accurately determine the cost drivers of Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Vineyard aggregates all operating costs of $1,200,000 into a single overhead cost pool. Vineyard 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 Cook, Vineyard'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 Vineyard to lose business. Cook divides Vineyard's costs into four activity-cost categories. x Data Table Requirements a. Direct-labor costs, $225,000. These costs can be directly traced to HT, $175,000, and ST, $50,000 b. Equipment-related costs (rent, maintenance, energy, and so on), $375,000. These costs are allocated to HT and ST on the basis of test-hours. c. Setup costs, $360,000. These costs are allocated to HT and ST on the basis of the number of setup-hours required. HT requires 10,000 setup-hours, and ST requires 5,000 setup-hours. d. Costs of designing tests, $240,000. 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 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 HT and ST. Explain briefly the reasons why these numbers differ from the $16 per test-hour that Vineyard 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 Vineyard's management use the cost hierarchy and ABC information to better manage its business? Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacty. Under its current simple costing system, Vineyard aggregates all operating costs of $1,190,000 into a single overhead cost pool. Vineyard calculates a rate per test-hour of $17 (51,190,000 / 70,000 total test-hours). HT uses 40,000 test-hours, and ST uses 30,000 test-hours. Gary Maloney, Vineyard's controller, believes that there is enough variation in test procedures and cost structures to establish separate costing and biling 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 Vineyard to lose business. Maloney divides Vineyard's costs into four activity cost categories Click the icon to view the activity-cost categories.) Read the requirements First, determine the formula used to calculate the cost for each activity in each test type. Activity hours per test type * Cost per activity Calculate the cost of cach activity and the total cost of the heat testing and stress testing. Heat Test (HT) Stress Test (ST) Total Cost Cost Direct labor 90000 2.25 Equipment 200000 5 Setup 350000 Design Total Total Determine the formula to calculate the HT cost per test-hour and enter the amounts to calculate the rate. (Round the rate to the nearest cent.) Total HT costs = HT Cost per test-hour per test-hour Determine the formula to calculate the ST cost per test-hour and enter the amounts to calculate the rate. (Round the rate to the nearest cent.) = ST Cost per test-hour per test-hour The cost per test-hour for HT and ST differs from the cost per test-hour using the simple rate because: Requirement 3. Explain the accuracy of the product costs calculated using the simple costing system and the ABC system. How might Vineyard's management use the cost hierarchy and ABC information to better manage its business? The accuracy of the product costs will be with the ABC system instead of the simple casting system. The ABC product costs will the utilization of resources by both products. Management can use the ABC costs to 7. The cost hierarchy enables management to more accurately determine the cost drivers of
