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 $2.455 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) Note: The 100 nonroutine jobs are included in the total of 500 jobs. Both nonroutine jobs and routine Jobs require estimating and setup. None Costs for the Year Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 7 $ 407.900 800,000 96,000 56,000 300,000 490,000 5 2,149,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Hages and salaries SON 10% 30N Disposal fees 70% Ox 30% Equipment depreciation AOK SX On-site supplies 60 25% 15 Office expenses 15% 35% 20% Licensing and insurance 25% OK 68% 205 Other 10N ex 35% ON 30% Total 100 100% 100 100N 100% 100% 15% 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 1000-square-foot asbestos removal job. h Antine 2 of chestremnih
