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 $2.80 to determine the bid price. Since our average cost is only $2.575 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	800	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	$	372,000
Disposal fees		775,000
Equipment depreciation		96,000
On-site supplies		58,000
Office expenses		280,000
Licensing and insurance		480,000
Total cost	$	2,061,000

Distribution of Resource Consumption Across Activities
	Removing Asbestos			Estimating and Job Setup			Working on Nonroutine Jobs			Other		Total
Wages and salaries	60	%		10	%		20	%		10	%	100	%
Disposal fees	60	%		0	%		40	%		0	%	100	%
Equipment depreciation	50	%		10	%		15	%		25	%	100	%
On-site supplies	70	%		20	%		10	%		0	%	100	%
Office expenses	10	%		40	%		20	%		30	%	100	%
Licensing and insurance	25	%		0	%		60	%		15	%	100	%

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 Complete this question by entering your answers in the tabs below. Req 2 Req 1 Req 3A to 3C Perform the first-stage allocation of costs to the activity cost pools. Estimating and Job Setup Working on Nonroutine Jobs Removing asbestos Other Total Wages and salaries Disposal fees Equipment depreciation On-site supplies 0 0 Office expenses Licensing and insurance 0$ 0$ Total cost $ Coroonchot

Answer 1

Req. 1 :

Distribution of Resource Consumption across Activities
	Removing Asbestos	Estimating and Job Setup	Working on Nonroutine Jobs	Other	Total
Wages and Salaries	$ 223,200	$ 37,200	$ 74,400	$37,200	$ 372,000
Disposal Fees	465,000	0	310,000	0	775,000
Equipment Depreciation	48,000	9,600	14,400	24,000	96,000
On-site supplies	40,600	11,600	5,800	0	58,000
Office Expenses	28,000	112,000	56,000	84,000	280,000
Licensing and Insurance	120,000	0	288,000	72,000	480,000
Total Cost	$ 924,800	$ 170,400	$ 748,600	$217,200	2,061,000

Req. 2 :

Activity Cost Pool	Activity Rate
Removing Asbestos	$ 1,156	per thousand square feet
Estimating and Job Setup	426	per job
Working on nonroutine jobs	7,486	per nonroutine job

Req. 3 :

	Routine 1,000 sq. ft. job	Routine 2,000 sq. ft. job.	Nonroutine 2,000 sq. ft. job
Total Cost	$ 1,582	$ 2,738	$ 10,224
Average Cost per Thousand Sq. Ft.	1,582	1,369	5,112