3 eBook 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 for 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 price. Since our average cost is only $2175 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 500 jobs Working on monroutine jobs Number of noncoutine jobs 100 nonroutine jobs Other (organization-sustaining costs and idle capacity costa) 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 Other Distribution of Resource consumption Cross Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 508 100 305 Disposal fees 605 Os 405 Equipment depreciation 408 56 203 On-site supplies 603 300 101 office expenses 100 356 255 Licensing and insurance 305 os 500 Os 356 00 300 205 Total 1001 1001 1001 1005 1000 1000 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 1000 square foot asbestos removal job b. A routine 2,000-square-foot asbestos removal job A nonroutine 2,000 square foot asbestos removal job Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, L07-3, L07-4, LO7-5) Smoky Mountain Corporation makes two types of hiking boots-the Xtreme and the Pathfinder Data concerning these two product lines appear below: k Selling price per unit Direct materials per unit Direct labor per unit Direct Labor-hours per unit Estimated annual production and sales Xtreme $ 140.00 $ 72.00 $ 24.00 2.0 DLHS 20,000 units Pathfinder $ 99.00 $ 53.00 $ 12.00 1.0 DLHS 80,000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below Estimated total manufacturing overhead Estimated total direct labor-hours $ 1,980,000 120,000 DLRS Required: 1. Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. 2. The company is considering replacing its traditional costing system with an activity based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization sustaining costs and idle capacity costs) Activities and Activity Measures Supporting direct labor (direct labor-hours) Batch setups (setupa) Product sustaining (number of products) Other Total manufacturing overhead cost Estimated Ixpected Activity overhead coat Xtreme Pathfinder Total 783, 600 40,000 80,000 120.000 495,000 200 100 300 602,400 1 1 2 99,000 NA NA NA $ 1,980,000 Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. 3. Prepare a quantitative comparison of the traditional and activity based cost assignments Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Compute the product margins for the Xtreme and the Pathfinder products under the company's traditional costing system. (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.) Xtreme Pathfinder Total Product margin