chapter 6 question 3

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the companys 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 $2.80 to determine the bid price. Since our average cost is only $2.31 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 squarefeet
Estimating and job setup	Number of jobs		400		jobs
Working on nonroutine jobs	Number of nonroutine jobs		100		nonroutine jobs
Other (costs of idle capacity and organization-sustaining 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.

Costs for the Year
Wages and salaries	$	332,000
Disposal fees		740,000
Equipment depreciation		90,000
On-site supplies		54,000
Office expenses		240,000
Licensing and insurance		440,000
Total cost	$	1,896,000

Distribution of Resource Consumption Across Activities

	Removing Asbestos				Estimating and Job Setup				Working on Nonroutine Jobs				Other				Total
Wages and salaries		50	%			10	%			30	%			10	%				100	%
Disposal fees		70	%			0	%			30	%			0	%				100	%
Equipment depreciation		40	%			5	%			20	%			35	%				100	%
On-site supplies		60	%			25	%			15	%			0	%				100	%
Office expenses		10	%			40	%			15	%			35	%				100	%
Licensing and insurance		25	%			0	%			60	%			15	%				100	%

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. (Round the "Average cost" 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.

Equipment depreciation On-site supplies Office expenses Licensing and insurance 40% 60% 10% 25% 5% 25% 40% 0% 20% 15% 15% 60% 35% 0% 35% 15% 100% 100% 100% 100% Required: 1. Perform the first-stage allocation of costs to the activity cost pools. Estimating Working on Removing and Nonroutine Jobs Other Total Asbestos Job Setup Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 0 2. Compute the activity rates for the activity cost pools 6.1.3jpg 6.2.3.ipg 6.1.3b.jpg 2. Compute the activity rates for the activity cost pools. Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Activity Rate per thousand square feet per job per nonroutine job 3. Using the activity rates you have computed, determine the total cost and th system. (Round the "Average cost" to 2 decimal places.) a. A routine 1,000-square-foot asbestos removal job. 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 costin system. (Round the "Average cost" to 2 decimal places.) a. A routine 1,000-square-foot asbestos removal job Total cost of the job Average cost per thousand square feet b. A routine 2,000-square-foot asbestos removal job Total cost of the job Average cost per thousand square feet c. A nonroutine 2,000-square-foot asbestos removal job Total cost of the job Average cost per thousand square feet 1:16 AM Hi e 12/13/2018 O Type here to search 8 9