Cook Asbestos Removal Company removes potentially toxic asbestos insulation from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately distinguish between routine work, such as removing 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 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. Because our average cost is only $2.175 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. 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 gathered the following activity-based costing data:

Activity Cost Pool	Activity Measure	Total Activity
Removing asbestos	Thousands of square feet	800 thousand square feet
Estimating and job setup	Number of jobs	500 jobs
Working on nonroutine jobs	Number of nonroutine jobs	100 nonroutine jobs
Other (organization-sustaining costs and idle capacity costs)	None
Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine jobs require estimating and setup.

Costs for the Year
Wages and salaries	$300,000
Disposal fees	700,000
Equipment depreciation	90,000
On-site supplies	50,000
Office expenses	200,000
Licensing and insurance	400,000
Total cost	$1,740,000

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

Required:

1. Using Exhibit 1 as a guide, perform the first-stage allocation of costs to the activity cost pools.
2. Using Exhibit 2 as a guide, compute the activity rates for the activity cost pools.
3. Calculate 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?

First-Stage Allocations to Activity Cost Pools A B D E G 1 3 4 Production Department: Activity Cost Pools Customer 7700001 Orders Design Order Size Customer Relations Other Totals 5 Indirect factory wages 25% 40% 20% 10% 5% 100% 6 Factory equipment depreciation 20% 0% 60% 0% 20% 100% 7 Factory utilities 0% 10% 50% 0% 40% 100% 8 Factory building lease 0% 0% 0% 0% 100% 100% 10 General Administrative Department: 11 Administrative wages and salaries 15% 5% 10% 30% 40% 100% 12 Office equipment depreciation 30% 0% 0% 25% 45% 100% 13 Administrative building lease 0% 0% 0% 0% 100% 100% 15 Marketing Department: 16 Marketing wages and salaries 22% 8% 0% 60% 10% 100% 17 Selling expenses 10% 0% 0% 70% 20% 100% 18 A A B C D E F G 1 Activity Cost Pools Customer Orders Product Design Order Size Customer Relations Other Totals 2 3 4 Production Department: 5 Indirect factory wages 6 Factory equipment depreciation 7 Factory utilities 8 9 11 12 13 Factory building lease 10 General Administrative Department: Administrative wages and salaries Office equipment depreciation Administrative building lease 14 15 Marketing Department: 16 Marketing wages and salaries 17 Selling expenses 18 19 Total 20 $ 125.000 $ 200.000 $ 100,000 $ 50,000 $ 25,000 $ 500,000 60,000 0 0 180,000 0 60,000 300,000 Q 12,000 0 60,000 0 48,000 120,000 0 0 80,000 80,000 60,000 20,000 40,000 120,000 160.000 400,000 15,000 0 0 0 12,500 22,500 50,000 0 0 0 60,000 60,000 55,000 5.000 20:000 0 0 150,000 Q 35.000 25,000 250,000 10.000 50.000 $ 320,000 $252.000 S 380.000 S/367.500 S 490.500 S 1.810.000 25% 6 X $500,000 $125,000