Help Sa Saved t 7 Problem 7-18 Activity-Based Costing and Bidding on Jobs [LO7-2, LO7-3, LO7-4) 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 eook the square footage by $360 to determine the bid price. Since our average cost is only $2.775 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 ReterencenTo 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 ctivity Cost Pool enoving asbestos Eatinating and job setup Working on honroutine jobs other (organization-sustaining costs Activity Heasure Thous ands of square feet Number of jobs Number of nonroutine jobs 800 thousand square feet 400 jobs 100 nogroutine Jobs and idle capacity eosts) None Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobe and routine jobs require estinating and setup Costs for the Year Wages and salaries Disposal feea Equipnent depreeiation On-site supplies $ 480,000 882,000 108,000 8.000 380,000 s Prev 18 or 18 Next To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from costing system follow Activity MeasureTotal Activity Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining costs Thousands of square feet Number of jobs Number of nonroutine jobs 800 thousand square feet 400 jobs 100 nonroutine jobs 10 points Skipped and idle capacity costs) Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. None eBook Costs for the Year Print Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost $ 480,000 882,000 108,000 68,000 380,000 580,000 $2,498,000 References Distribution of Resource Consumption Across Activities Eatinating Working on Removing and Job Nonroutine Jobs 20% 30 20% 10 20% 50% Other Tota1 Wages and salaries Disposal fees Equipment depreciation On-site supplies office expenses Licensing and insurance Asbestos 50% 708 401 70% 15 30% Setup 158 0% 5t 20% 35% 158 1008 100% 100% 100 5 100 08 30% 20, K Prev18 of 18 Next 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 sa. 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. Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3A to 3C 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 C Req 1 Req 3A to 3c 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. Complete this question by entering your answers in the tabs below ped Req 1 Req 2 Req 3A to 30 ook 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 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. feet" to 2 rences Show less Routine Routine Nonroutine 1,000 sq. ft. 2,000 sq. ft. 2,000 sq. ft job Total cost of the job Average Cost per thousand square feet C Req 2