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 $3.60 to determine the bid price. Since our average cost is only $2.845 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 Cont Pool Activity Measure Total Netivity Removing asbestos Thousands of square feet 250 thousand square feet Estimating and job setup Number of jobe 400 dobu Working on monroutine jobs Number of non routine joba 100 non routine Jobs Other (organization sustaining costs and idle capacity conta) None Note: The 100 nonroutine Jobs are included in the total of 400 jobs. Both monroutineoband routine jobs require estimating and setup. Costs for the Year Wages and salaries Disposal fees Equipment depreciation On-site supplies office expenses Licensing and insurance Total cost 5 460,000 962,000 104.000 66,000 360,000 560.000 $2,412,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 505 156 200 Disposal fees 705 08 308 Equipment depreciation 508 105 158 On-site supplies 604 308 104 office expenses 150 358 200 Licensing and insurance 256 ON 608 Other 158 08 258 00 305 150 Total 1008 100! 1008 1000 1000 1000 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 Reg 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 Reg 1 Reg 2 Reg 3A to 3C 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 feet" 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. Show less Routine 1.000 sqft. job Routine 2,000 sq. ft. job Nonroutine 2,000 sq. ft. job Total cost of the job Average Cost per thousand square feet
