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 $2.50 to determine the bid price. Since our average cost is only $2.235 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 800 thousand square feet Estimating and job setup Number of jobs 500 jobs Working on non routine jobs Number of nonroutine jobs 100 nonroutine jobs Other (organization-sustaining costs and discapacity costs) None Note: The 100 routine jobs are included in the total of 500 jobs. Both monroutine jobs and 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 $ 317.000 712.000 97.000 55.000 220,000 420,000 $1,821,000 Other 150 Distribution esource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 508 158 208 Disposal fees 08 40% Equipment depreciation 508 On-site supplies 608 25 158 office expenses Licensing and insurance 608 600 06 150 258 Total 1008 100% 1001 100% 1008 1008 158 358 303 108 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 Req2 Req 3A to 30 Perform the first stage allocation of costs to the activity cost pools. + Removing asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total
