Question 5: (37 marks total) Hot 'N Cold Laboratories evaluates the reaction of materials to extreme increases in temperature. Much of the company's early growth was attributable to government contracts, but recent growth has come from expansion into commercial markets. Two types of testing at Hot 'N Cold are Desert Heat Testing (DHTT) and Arctic Air Condition Testing (AACT). 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 45% to recover administrative costs and taxes, and to earn a profit Victor Fries, Hot 'N Cold'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 45% markup. He also believes that the inflexible rate structure currently being used is inadequate in today's competitive environment. After analyzing the company data, he has divided operating costs into the following three cost pools: Labour and supervision Setup and facility costs Utilities Total budgeted costs for the period 491,840 402,620 368,000 1,262,460