Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials, and operates at capacity.

Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials, and operates at capacity. Under its current 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 ($1 190 000 4 70 000 total test-hours). HT uses 40000 test-hours, and ST uses 30000 test-hours. Gary Celeste, Vineyard's management accountant, 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 mis-costing and mis-pricing of its services could cause Vineyard to lose business. Celeste divides Vineyard's costs into four activity-cost categories:

1. Direct-labour costs, $146 000. These costs can be directly traced to HT, $100 000, and ST, $46 000.
2. Equipment-related costs (rent, maintenance, energy and so on), $350 000. These costs are allocated to
3. HT and ST on the basis of test-hours.
4. Set-up costs, $430 000. These costs are allocated to HT and ST on the basis of the number of set-up
5. hours required. HT requires 13 600 set-up hours, and ST requires 3600 set-up hours.
6. Costs of designing tests, $264 000. These costs are allocated to HT and ST on the basis of the time
7. required for designing the tests. HT requires 3000 hours, and ST requires 1400 hours.

REquiRED

1. Classify each activity cost as output-unit-level, batch-level, product- or service-sustaining, or organisation-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 $17 per test-hour that Vineyard calculated using its traditional costing system.
3. AssesstheaccuracyoftheproductcostscalculatedusingthecurrentcostingsystemandtheABCsystem. How might Vineyard's management use the hierarchy and ABC information to better manage its business?