Conway Mountain Analysis Offers Agriculture and Environmental Assays

question 117

Essay

Conway Mountain Analysis offers agriculture and environmental assays. Its Soil Division performs testing on soil (S), as well as examines for the presence of pesticide residue (PR). Aggregated operating costs for the division are $1,050,000 based on a single overhead pool at a rate of $70 per testing hour. S testing uses 5,000 hours and PR uses 10,000 hours. The company is trying to determine whether a better costing structure can be established. The controller has identified the following costs:
(1) Salaries and wages of laboratory techs are $600,000 based on 45% to S testing and 55% to PR testing.
(2) Equipment related overhead like maintenance and utilities amounts to $150,000, with a cost driver of number of test hours.
(3) Setup costs are $120,000 assigned based on 10,000 total setup hours. S testing requires 4,200 setup hours and PR testing requires 5,800 setup hours.
(4) Costs of test designs amount to $180,000, based on the time required to design the tests. S testing requires 3,250 hours and P testing requires 1,750 hours.
Required:
Classify (1) through (4) above as volume-, batch-, product-, or facility-related costs.

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Definitions:

Coke

A trademarked name for a popular carbonated soft drink produced by The Coca-Cola Company, known globally.

Pepsi

A global beverage and food company known primarily for its flagship product, a carbonated soft drink called Pepsi.

Infrastructure

The basic physical and organizational structures and facilities needed for the operation of a society or enterprise, such as roads, buildings, and power supplies.

CVP

Stands for Cost-Volume-Profit analysis, a financial tool that companies use to determine how changes in costs and volume affect a company's operating income and net income.