Chapter 7 - problem 18

Activity cost Pool Activity Measure Total Activity

Removing asbestos . Thousands of square feet 800 thousand square feet

Equipment and job steps. Number of jobs 500 jobs

Working on nonroutine jobs. Number of jobs nonroutine jobs 100 nonroutine jobs

Other organization-sustaining costs and idle capacity costs None

Note The 100 nonrountine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and steps.

Cots for the Year

Wages and salaries $300,000

Disposal fees 700,000

Equipment depreciation . 90,000

One-site suppliers 50,000

Office expenses 200,000

License and insurance . 400,000

Total cost 51,740,000

Distribution of Resource Consumption across Activities

Estimating Working on

Removing and job steps Nonroutine jobs

Asbestos other Total

Wages and salaries 50% 10% 30% 10% 100%

Disposal fees 60% 0% 40% 0% 100%

Equipment depreciation 40% 5% 20% 35% 100%

One-site suppliers 60% 30% 10% 0% 100%

Office expenses 10% 35% 25% 30% 100%

License and insurance 30% 0% 50% 20% 100%

Require

1. Using Exhibit 7-6 as a guide, perform the first-stage allocation of costs to the activity cost pools.
2. Using Exhibit 7-7 as a guide, 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.

1. A routine 1.000-square-foot asbestos removal job.
2. A routine 2.000-square-foot asbestos removal job
3. A nonroutine 2 000-square-foot asbestos removal job.

4. Given the results you obtained in (3) above, do you agree with the estimator that the company's present policy for bidding on jobs is adequate?