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 $2.80 to determine the bid price. Since our average cost is only $2.585 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 850 thousand square feet Estimating and job setup Number of jobs Working on nonroutine jobs Number of non routine jobs 100 non routine Jobs Other (organization-sustaining costs and idle capacity costs) None NoteThe 100 no routine jobs are included in the total of 400 jobs. Both nonroutine Jobs and routine jobs require estimating and setup. 400 jobs Costs for the Year Wages and salaries Disposal Tees Eient depreciation On-site Supplies office expenses Licensing and insurance Total cos 400.000 791,000 96,000 60.000 300,000 52.147.000 Distribution of Resource Consumption Across Activities Estimating working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 609 18 201 Disposal fees 685 405 Equipment depreciation 40% 58 25% On-site supplies 604 254 154 Office expenses 185 355 255 Licensing and insurance 38% 50 Other 105 es 385 Total 100 1885 100 100 1085 1805 305 201 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. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Req 3A to 30 Other Total Jobs $ Perform the first-stage allocation of costs to the activity cost pools. Removing Estimating Working on and Job Nonroutine asbestos Setup Wages and salaries Disposal fees Equipment depreciation On-site supples Ottice expenses Licensing and insurance
