Cat 70 Seved 18 Problem 7-18 (Algo) Activity-Based Costing and Bidding on Jobs (L07-2, L07-3, L07-4) 10 points Skipped eBook Print Reference 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 onroutine 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 ensure the area to be cleared of asbestos. As directed by top management simply multiply the square footage by $350 to determine the bid price. Since our average cost is only $2.775 per square foot, that loves 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 Thousands of square Removing asbestos thousand square feet see feet Estimating and job setup Number of jobs 400 jobs Number of nonroutine Working on non routine jobs Jobs 100 no routine Jobs Other (organization- sustaining costs and idle capacity costs) None Note: The 100 no routine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine joostere estimating and setup Costs for the Year Wages and salaries $ 480,000 Disposal fees 882,000 Equipment 108,000 depreciation On-site supplies 68,00 Office expenses 380,000 Licensing and 580,000 insurance Total cost 2,498,000 Distribution of Resource Consumption Across Activities Estimatingworking on Removing and Job Non routine Asbestos Setup Jobs Other Total Wages and salaries 584 159 209 154 100 Disposal fees 701 es 30 es 100 Equipment depreciation 404 59 20 354 1004 On-site supplies 701 200 18 09 100N office expenses 15 354 201 38 2001 Licensing and 30 es 204 1001 insurance Required: 1. Perform the first stage allocation of costs to the activity cost poo 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 se 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 Anonroutine 2,000-square-foot asbestos removal job ses Complete this question by entering your answers in the tabs below. ME Caw
