Homework Help is Here – Start Your Trial Now!
Business
Accounting
Cost-plus and market-based pricing. (CMA, adapted) Precision 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 Precision 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 esti- mated 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 40% to recover administrative costs and taxes and to earn a profit. Jeff Boone, Precision'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 40% markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today's competitive environment. After analyzing the company data, he has divided operating costs into the following three cost pools: $ 500,000 300,000 360,000 $1,160,000 Labor and supervision Setup and facility costs Utilities Total budgeted costs for the period Jeff Boone budgets 100,000 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 600 setup hours. The budgeted quantity of cost driver for utilities is 9,000 machine-hours. Jeff has estimated that HTT uses 60% of the test-hours, 20% of the setup-hours, and half the machine- hours.

Cost-plus and market-based pricing. (CMA, adapted) Precision 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 Precision 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 esti- mated 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 40% to recover administrative costs and taxes and to earn a profit. Jeff Boone, Precision'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 40% markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today's competitive environment. After analyzing the company data, he has divided operating costs into the following three cost pools: $ 500,000 300,000 360,000 $1,160,000 Labor and supervision Setup and facility costs Utilities Total budgeted costs for the period Jeff Boone budgets 100,000 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 600 setup hours. The budgeted quantity of cost driver for utilities is 9,000 machine-hours. Jeff has estimated that HTT uses 60% of the test-hours, 20% of the setup-hours, and half the machine- hours.

Essentials of Business Analytics (MindTap Course List)
Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...
See similar textbooks
icon
Related questions
Question

Find the three activity-based rates for operating costs

Cost-plus and market-based pricing. (CMA, adapted) Precision 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 Precision 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 esti- mated 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 40% to recover administrative costs and taxes and to earn a profit. Jeff Boone, Precision'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 40% markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today's competitive environment. After analyzing the company data, he has divided operating costs into the following three cost pools: $ 500,000 300,000 360,000 $1,160,000 Labor and supervision Setup and facility costs Utilities Total budgeted costs for the period Jeff Boone budgets 100,000 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 600 setup hours. The budgeted quantity of cost driver for utilities is 9,000 machine-hours. Jeff has estimated that HTT uses 60% of the test-hours, 20% of the setup-hours, and half the machine- hours.
Transcribed Image Text:Cost-plus and market-based pricing. (CMA, adapted) Precision 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 Precision 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 esti- mated 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 40% to recover administrative costs and taxes and to earn a profit. Jeff Boone, Precision'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 40% markup. He also believes that the inflexible rate structure the company is currently using is inadequate in today's competitive environment. After analyzing the company data, he has divided operating costs into the following three cost pools: $ 500,000 300,000 360,000 $1,160,000 Labor and supervision Setup and facility costs Utilities Total budgeted costs for the period Jeff Boone budgets 100,000 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 600 setup hours. The budgeted quantity of cost driver for utilities is 9,000 machine-hours. Jeff has estimated that HTT uses 60% of the test-hours, 20% of the setup-hours, and half the machine- hours.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Cost classification
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course …
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS