Maynard
Test
Laboratories
does
heat
testing
(HT)
and
stress
testing
(ST)
on
materials
and
operates
at
capacity.
Under
its
current
simple
costing
system,
Maynard
aggregates
all
operating
costs
of
$1,200,000
into
a
single
overhead
cost
pool.
Maynard
calculates
a
rate
per
test-hour
of
$16
(51,200,000
=
75,000
total
test-hours).
HT
uses
50,000
test-hours,
and
ST
uses
25,000
test-hours.
Gary
O'Loughlin,
Maynard'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
Maynard
to
lose
business.
O'Loughlin
divides
Maynard's
costs
into
four
activity-cost
categories.
B
(Click
the
icon
to
view
the
activity-cost
categories.)
Read
the
requirements.
Direct
labor
$
175,000
$
50,000
Equipment
250,000
125,000
Setup
240,000
120,000
Design
150,000
90,000
Total
$
815,000
$
385,000
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
test-hours
=
HT
Cost
per
test-hour
$
815,000
-
50,000
=
$
16.30
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))
Total
ST
costs
=
ST
test-hours
=
ST
Cost
per
test-hour
$
385,000
+
25,000
$
1540
per
test-hour
The
cost
per
test-hour
for
HT
and
ST
differs
from
the
cost
per
test-hour
using
the
simple
rate
because:
HT
and
ST
use
different
amounts
of
overhead
resources.
The
simple
method
does
not
take
that
into
account.
HT
is
allocated
a
higher
proportion
of
indirect
costs
because
it
uses
more
resources.
Indirect
costs
are
subdivided
into
4
activity-cost
categories
to
more
accurately
determine
cost
drivers
of
indirect
costs.
Requirement
3.
Explain
the
accuracy
of
the
product
costs
calculated
using
the
simple
costing
system
and
the
ABC
system.
How
might
Maynard''s
management
use
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