Ch 18 Problem 7-18 (Algo) Activity-Based Costing and Bidding on Jobs (L07-2, L07-3, LO7-4) 10 points Book Print 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 $2.50 to determine the bid price. Since our average cost is only $2.455 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 on activity based costing study of all of its costs. Data from the activity-based costing system follow Activity Control Activity Measure Total Activity Renoviny asbeton Thousands of square feet 1,000 thousand square feet Botimating and job setup Number of Joha 500 job Working on nonroutine joba Manber of noncoutine joba 100 no routine Jobs other organisation-staining donts and idle capacity cota) None Hotel The 100 no routine jobs are included in the total of 500 jobs, both nonroutine jobs and routine jobs require estimating and setup References Coats for the Year Wages and salarios Diposal fee Equipment depreciation On-site supplies office expenses Licensing and inwurance Total cost 5 407,000 800,000 $6,000 56,000 300,000 490,000 $ 2,149,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 508 100 30% Disposal fees 708 08 30 Equipment depreciation 408 59 203 On-site supplies 600 258 158 Office expenses 155 350 206 Licensing and insurance 254 08 601 Other 108 08 358 08 308 154 Total 1002 100 1005 1008 100+ -1003 nBook Print 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. ferences Complete this question by entering your answers in the tabs below. Over JOD. Complete this question by entering your answers in the tabs below. Book Reg 1 Reg 2 Red 3A to 30 Print Other Total References Perform the first stage allocation of costs to the activity cost pools. Removing Estimating Working on and Job Nonroutine asbestos Setup Jobs Wages and salarios Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost wy old COSE 3. Using 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. c. A nonroutine 2,000-square-foot asbestos removal Job. Complete this question by entering your answers in the tabs below. tences Reg 1 Reg 2 Req3A to C Compute the activity rates for the activity cost pools. Activity Cost Pool Removing asbestos Estimating and job setup Working on nor routine jobs Activity Rate per thousand square foot por job per nonroutine job Reg A 130 > 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. int Complete this question by entering your answers in the tabs below. preces Reg 1 Reg 2 Reg 3A to 3C 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. (Round the "Average Cost per thousand square feet" to 2 decimal places.) 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. Show less Routine Routine Nonroutine 1,000 sq. ft. 2,000 sq.ft 2,000 sq. ft. job job job Total cost of the job Averago Cost per thousand square feet