ACCOUNT 249 Intro to Managerial Accounting - Canvas Assignment # 3 Chapter 7 Canvas Homework - SHOW YOUR WORK FOR CREDIT Activity-Based Costing and Job Bidding McDonald Asbestos Removal Company removes 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 $3.00 to determine the bid price. Since our average cost is only $2.755 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 Activity Measure Thousands of square feet 800 Total Activity 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. Note: The 100 nonroutine jobs an included in the total of 400 jobs. Both norvoutine jobs and routine jobs require estimating and setup Costs for the Year Weges and salaries $420,000 Disposal 814,000 Equipment depreciation 96,000 On-site supples 62,000 Office expenses 320,000 Licensing and insurance 520,000 Total cost $2,232,000 Distribution of Resource Consumption Across Activities Ramoving Asbestos Estimating and Job Working on Nonroutine Selup Other Total Wages and salaries 50% 15% 20% 15% 100% Disposal f 60% 0% 40% 0% 100% Equipment 40% 5% 20% depreciation 35% 100% On-site supplies 60% 30% 10% 0% 100% Office expenses 15% 39% 20% 30% 100% Licensing and 25% 0% Insurance 60% 15% 100% Required: 1. Perform the first-stage allocation of costs to the activity cost pools 1. First State Allocation-Allocate costs to Activity Pools Removing Asbestos Estimating Working Other Total job setup nonroutine jobs Wages & salaries $420,000 Disposal fees $814,000 Equipment depreciation $96,000 On-site supplies $62,000 Office expenses $320,000 Licensing & insurance $520.000 Total $952,000 $196,400 5011,000 $270,600 $2.232.000 2. Activity Rates (include units for full credit) eg. $20,000 per machine hour: Removing AARASIR Estimating & job setup Working on nonroutine jobs 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 for the following jobs. 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 Job a Total Cost $ Ave cost per $1,000 sqft $ Job b Total Cost S Ave cost per $1,000 sats Job c Total Cost S Ave cost per $1,000 sots