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." Skipped 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 Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost $ 372,000 775,000 96,000 58,000 280,000 480,000 $ 2,061,000 Other 10% Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 60% 106 206 Disposal fees Equipment depreciation 50% 156 On-site supplies 20% 106 Office expenses 106 Licensing and insurance 25€ Total 100% 100% 100% 100% 25% 20% 1005 06 1008 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. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A to 30 Perform the first stage allocation of costs to the activity cost pools. Removing asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 0S 0S 0S 0S

Answer 1

Req 1 Wages & Salary Disposal Fees Equipment Depreciation On-site supplies Office Expenses Licensing & Insurance Total Cost Removing Asbestos 1,96,200.00 4,65,000.00 48,000.00 40,600.00 28,000.00 1,20,000.00 8,97,800.00 Working on Estimating & Non-routine Job Setup jobs Others 32,700.00 65,400.00 32,700.00 - 3,10,000.00 9,600.00 14,400.00 24,000.00 11,600.00 5,800.00 1,12,000.00 56,000.00 84,000.00 - 2,88,000.00 72,000.00 1,65,900.00 7,39,600.00 2,12,700.00 Total 3,27,000.00 7,75,000.00 96,000.00 58,000.00 2,80,000.00 4,80,000.00 20,16,000.00 Req 2 Activity Cost Pool Removing Asbestos Estimating and job setup Working on nonroutine jobs Activate Rate 1,122.25 per thousand square feet 414.75 per job 7,396.00 per nonroutine job Req3 Routine 2,000 sq.ft Routine 1,000 sq. ft job 1,537.00 job Non-Routine 2,000 sq.ft job 10,055.25 2,659.25 Total Cost of the Job Average cost per thousand feet 1,537.00 1,329.63 5,027.63