all questions needed 1, 2, 3a, 3b, 3c!
Problem 5-18 Activity-Based Costing and Bidding on Jobs [LO5-2, LO5-3, L05-4) 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 $3.60 to determine the bid price. Since our average cost is only $2.845 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: Thow Estimating and setup One organization staining costs and de The 10 noies and in the Borromes and routine requirestimating and we Wages des 100.000 Despesa Topmort depreciation 104,000 0.000 Openom 300.000 Licenog 0.000 34120 Distribution of Resource Consumption Across Activities Removing Estimating and woning on Moutine One Disponom E 70% 0% 05 Licensing and 25% 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 $3.60 to determine the bid price. Since our average cost is only $2.845 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: Removing asbestos Estimating and ship Number of Working on mooie jobs Other organization-sustaining costs and de Note: The 100 ron routines included in the total of 400 je. Both routine and time Ement depreciation 14.000 Onsepplies Licensing and 560,000 TEA Distribution of Resource Consumption Archives Removing Estimating and Woningen Note One Waganda 205 10% 0 Et Ofice expenses Licensing and inance os 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
