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 $2.50 to determine the bid pnce. Since our average cost is only $2.175 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 Removing asbestos Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and organization-sustaining costs) Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs Total Activity 800 thousand squarefeet 500 jobs 100 nonroutine jobs None Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and setup. $ Costs for the Year Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 300,000 700,000 90,000 50,000 200,000 400,000 1,740,000 $ Distribution of Resource Consumption Across Activities Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Removing Asbestos 50% 60% 40% 60% 10% 30% Estimating and Job Setup 10% 0% 5% 30% 35% 0% Working on Nonroutine Jobs 30% 40% 20% 10% 25% 50% Other 10% 0% 35% 0% 30% 20% Total 100% 100% 100% 100% 100% 100% Required: 1. Perform the first-stage allocation of costs to the activity cost pools.

Answer 1

Ansoen Page: No o telef ofange allocation of the activity cont pales coages & salonies Total weges & salaries – $300,000 Removing as berfors = 300,000 X 50% = $150,000 Estimating & Job set up < 300,000 X 10% = $ 30,000 Cooking on non routine jobs = 300,000x 304 = $90,000 others. = 300,000 X10% - $ 30,000 Disposal fecos Tobal disposal fees = $ 700,000 Removing asbestos = 700,000 X 60%. e $ 480,000 Coorking on pion routine jobs = 400,000 X 40%. $280,000 Equipment depreciation Total equipment depreciation = $ 20,000

Removing asbestos - 90,000 X 40%. - Page. No ① = $36000 Kastimating & job setup = 90,000x5%. = $4500 conting on Nonroutine jobs = 90,000x 204. -$18000 Others = 90,000 X 35% - $31500 On-site supplies - Total = $50,000 Removing asbestos = 50.000 X 60% = $ 30,000 Estimating & job sebup - 50,000 X 30%. = $15000 cooking on Nonroutine jobis = 50,000 X 10 %. = $5000 office expenses Total office expenses = $200,000 Removing asbesfors = 200,000 X 10 %. = $ 20,000 Estimating a job set up = 200,000 X 35%. = $90,000 coorking on Nonrouline jobs = 200,000 X 25%. = $50,000 Othens = 1200,000 X 30% = $ 60,000

Page No ③ Licensing & insurance Total licensing & Paswrance. =$400,000 Removing asbestos = 400,000 x 30'7 - $ 120,000 working on Nonroutine jobos = 400,000 x 50% = $ 200,000 Others = 400,000 x 20% = $ 80,000 Renowing Estimating cooking on Asbestos & job setup nonroutine other. Total agus and salaries $150,000 $30,000 $90,000 $30,000 $300,000 Disposal fees $420,000 $0 $280,000 $0 $700,000 Equipment depreciation $36000 $ 4500 $ 16000 $31500 $90,000 Onsite supplies $30,000 $15000 $5000 $0 $50,000 office expenses $ 20,000 $40,000 $ 50.000 $60,000 $200,000 Licensing & insurance $120,000 $0 $200,000 $80,000 $400,000 Total $746000 $119500 $643000 $201500 $1940,000 © Actividade de pos adbibiting cool pools Removing asbestos activity Diäte è $446000 800 thousand squ

= $440 per thorgand square feet Page. no Estimating & job setup = $119500 5500 jobs * $ 239 per jobs $643000 working on nonroutine jobs a 100 nonroutine jobs $6430 non routine jobs Activity cool pool 1 Activity rate Removing asbestos $970 pes thousand square Estimating and job sebop $ 239 per job working on non routine jobs $6430 non routine jobs 30% routine 1000 square foot asbestors removal job. Removing asbestos = $940 / thousand square feet x : I thousand square feet = $940 . · Estimating a job sebup = $ 239 per job X job = $ 239 Total cost of job = 970 + 239 = $1209

Cool per thousand square feet = Page. No © $1009 I thousand square foot $1209:- = Amount Total cost of the job $1209 Arg cosf per thousand square foot $1009 1 square feet | COA roetine 2000 square foot asbestos removal job Removing asbestos = $ 980 | thewusand square feet x a Housands = 970x2 = $1940 Krstimating and job setup = $ 2391job x tjob = $239 Total cost of job = 1940 + 239 = $ 2179 cost per thousand square feet = $2199 thousandsquare fook : : $1089.5

Page. No ① Amount Total cost of job $ 2149 cost per thousand square feet $1089.5 tes © Arom-routine 2000 square foot asbestos removal job Removing asbestos = $ 940 thousand square feet x 2 hengende pune - $1940 Estimating a job set up = $939 / Fobb x 1 job . = $a39 Nonrootine job - $6430 nonroutine jobs x 1 job E$ 6430 Total cost of job = 1940 + 239 + 6430 o $8609 cost per thousand square foot - 2 thousand Square foot * *4304.5 Total cost of job cost per thousand square feet "Amount $8609 $430415