1) compute the activity rates for the activity cost pools
2) using the activity rates (Q1) determine the total cost and the average cost per thousand square feet of each of the followin g jobs according to the activity based costing system.
A routine 1,000 square feet asbestos removal job
3) routine 2,000 square feet asbestos removal job
4) nonroutine 2,000 square feet asbestos removal job
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 no routine work such as removing asbestos contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nowotne 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, simply multiply the square footage by $250 to determine the bid price. Since our average cost is only $2.175 per square foot, that have enough cushion to take care of the additional costs of norine work that how to Besides, it is aficult to know what is routine or not routine until you actually start fearing things apart To shed light on this controversy, the company initiated an activity-based conting study of all of its comt. Data from the activity-based costing system follow Activity Cost Pool Avity sur Total Activity Removing asbeston Thousands of square feet 800 rsand quant Estimating and joseup Number of Working on morrone Number of route 100 no routine je Other costs of ide capacity and Organizationsning.com None 500 Note: The 100 no routine Jobs are included in the soul of 500 jobs Both nontoine jobs and routine jobs require estimating and setup costs for the Year Wages and sales $300.000 Disposa 700.000 Equipment 30.000 On-site supplies 50.000 Oops 200 000 Licensing and insurance 400.000 1.740/000 Distribution of Resource Consumption Across Activities Working Removing and Nontoine Asbestos Job Wages and stane 104 209 Disports 60 ON 40% Equipment pro 59 Ost supplies 60% 30 10% TON 25 Licensing and 09 One 10 ON ON SON 204 100% 100 1001 1001 100% 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 None Total Activity 800 thousand squarefeet 500 jobs 100 nonroutine jobs 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 $ 300,000 Disposal fees 700,000 Equipment depreciation 90,000 On-site supplies 50,000 Office expenses 200.000 Licensing and insurance 400,000 Total cost 1.740,000 Distribution of Resource Consumption Across Activities 50% Removing Estimating and Asbestos Job Setup 10% 60% 40% 5% 60% 30% 10% 35% 30% 0% Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance 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%
