Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the companys 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 $2.50 to determine the bid price. Since our average cost is only $2.44 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 1,000 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 $ 406,000 Disposal fees 793,000 Equipment depreciation 96,000 On-site supplies 58,000 Office expenses 280,000 Licensing and insurance 502,000 Total cost $ 2,135,000 Distribution of Resource Consumption Across Activities Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total Wages and salaries 60 % 10 % 20 % 10 % 100 % Disposal fees 60 % 0 % 40 % 0 % 100 % Equipment depreciation 40 % 5 % 20 % 35 % 100 % On-site supplies 70 % 20 % 10 % 0 % 100 % Office expenses 10 % 35 % 25 % 30 % 100 % Licensing and insurance 30 % 0 % 50 % 20 % 100 % 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.

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.85 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers-particularly those located on remote ranches that require considerable travel time. The owner's daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below: Activity Cost Pool Cleaning carpets Travel to jobs Job support Other (o Activity Measure Square feet cleaned (00s) Miles driven Number of jobs Activity for the Year 11,000 hundred square feet 131,000 miles 1,700 jobs ining costs and idle capacity costs Not applicable The total cost of operating the company for the year is $342,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost S 136,000 28,000 10,000 40,000 56,000 72,000 S 342,000 Resource consumption is distributed across the activities as follows Distribution of Resource Consumption Across Activities Cleaning Travel to CarpetsJobsJob Support Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's 13% 100% 65% 0% 0% 0% 15% 0% 0% 85% 0% 0% 0% 0% 0% 0% 56% 3340 Other 12% 0% 35% 15% 44% Total 100% 100% 100% 100% 100% 100% ensation Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on