OrangeOrange

Test Laboratories does heat testing$($HT$)$ and stress testing$($ST$)$ on materials and operates at capacity. Under its current simple costing$$system$,$

OrangeOrange

aggregates all operating costs of

$ $1$ comma $200$ comma $000$$$1,200,000$

into a single overhead cost pool.

OrangeOrange

calculates a rate per$$test$-$hour of

$ $16$$$16$

$($$ $1$ comma $200$ comma $000$$$1,200,000$

$$

$75$ comma $00075,000$

total$$test$-$hours$).$ HT uses

$50$ comma $00050,000$

$$test$-$hours, and ST uses

$25$ comma $00025,000$

$$test$-$hours. Gary

LawlerLawler$,$

OrangeOrange$\text{'}$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

OrangeOrange

to lose business.

LawlerLawler

divides

OrangeOrange$\text{'}$s

costs into four$$activity$-$cost categories.