Question

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $3.60 to determine the bid price. Since our average cost is only $2.845 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Activity Cost Pool	Activity Measure	Total Activity
Removing asbestos	Thousands of square feet	750	thousand square feet
Estimating and job setup	Number of jobs	400	jobs
Working on nonroutine jobs	Number of nonroutine jobs	100	nonroutine jobs
Other (organization-sustaining costs and idle capacity costs)	None
Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup.

Costs for the Year
Wages and salaries	$	460,000
Disposal fees		862,000
Equipment depreciation		104,000
On-site supplies		66,000
Office expenses		360,000
Licensing and insurance		560,000
Total cost	$	2,412,000

Distribution of Resource Consumption Across Activities
	Removing Asbestos			Estimating and Job Setup			Working on Nonroutine Jobs			Other		Total
Wages and salaries	50	%		15	%		20	%		15	%	100	%
Disposal fees	70	%		0	%		30	%		0	%	100	%
Equipment depreciation	50	%		10	%		15	%		25	%	100	%
On-site supplies	60	%		30	%		10	%		0	%	100	%
Office expenses	15	%		35	%		20	%		30	%	100	%
Licensing and insurance	25	%		0	%		60	%		15	%	100	%

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.

I only need help with question 3 a, b, and c please if you could show me how this is done i woul dapprecatie it

Answer 1

a)	Costs for the Year
	Wages and salaries	4,60,000
	Disposal fees	8,62,000
	Equipment depreciation	1,04,000
	On-site supplies	66,000
	Office expenses	3,60,000
	Licensing and insurance	5,60,000													`
	Total cost	24,12,000
	Distribution of Resource Consumption Across Activities
		Removing Asbestos			Estimating and Job Setup			Working on Nonroutine Jobs			Other			Total
	Wages and salaries	50	%	230000	15	%	69000	20	%	92000	15	%	69000	100	%	460000
	Disposal fees	70	%	603400	0	%	0	30	%	258600	0	%		100	%	862000
	Equipment depreciation	50	%	52000	10	%	10400	15	%	15600	25	%	26000	100	%	104000
	On-site supplies	60	%	39600	30	%	19800	10	%	6600	0	%	0	100	%	66000
	Office expenses	15	%	54000	35	%	126000	20	%	72000	30	%	108000	100	%	360000
	Licensing and insurance	25	%	140000	0	%	0	60	%	336000	15	%	84000	100	%	560000
	Total			1119000			225200			780800			287000			2412000
2)	Total activity			750			400			100
	Activity rate			1492			563			7808
	Activity measure			1000 Sq ft			Jobs			Jobs
3)	Cost of jobs---Job	a		b	c
	Removing asbestos	1492		2984	2984
	Estimating and Job Set Up	563		563	563
	Working on non-routine Jobs	0		0	7808
	Total cost of the Job	2055		3547	11355
	Cost per thousand square feet	$      2,055.00		$ 1,773.50	$ 5,677.50