Cost$-$plus and market$-$based pricing. $($CMA$,$ adapted$)$ Accurate Laboratories evaluates the reac$-$tion of materials to extreme increases in temperature. Much of the company$$s early growth was attribut$-$able to government contracts, but recent growth has come from expansion into commercial markets. Two types of testing at Accurate are heat testing $($HTT$)$ and Arctic$-$condition testing $($ACT$).$ Currently, all of the budgeted operating costs are collected in a single overhead pool. All of the estimated testing$-$hours are also collected in a single pool. One rate per test$-$hour is used for both types of testing. This hourly rate is marked up by $35\%$ to recover administrative costs and taxes and to earn a profit. Ethan Poole, Accurate$$s controller, believes that there is enough variation in the test procedures and

cost structure to establish separate costing rates and billing rates at a $35\%$ markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today$$s competitive environ$-$ment. After analyzing the company data, he has divided operating costs into the following three cost pools:

Labor and supervision Setup and facility costs

Utilities Total budgeted costs for the period

$ $452,400343,140286,400$

$$1,081,940$

Ethan budgets $116,000$ total test$-$hours for the coming period. Test$-$hours is also the cost driver for labor and supervision. The budgeted quantity of cost driver for setup and facility costs is $700$ setup hours. The bud$-$geted quantity of cost driver for utilities is $8,000$ machine$-$hours.

Ethan has estimated that HTT uses $70\%$ of the test$-$hours, $30\%$ of the setup$-$hours, and half the machine$-$hours. Required

$1.$ Find the single rate for operating costs based on test$-$hours, and the hourly billing rate for HTT and ACT. $2.$ Find the three activity$-$based rates for operating costs. $3.$ What will the billing rate for HTT and ACT be based on the activity$-$based costing structure? State the rates in terms of test$-$hours. Referring to both requirements $1$ and $2,$ which rates make more sense for Accurate?

$4.$ If Accurate$$s competition all charge $$18$ per hour for ACT, what can Accurate do to stay competitive?