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 $2.01 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 400 jobs

Working on nonroutine jobs Number of nonroutine jobs 100 nonroutine jobs

Other (costs of idle capacity and organization-sustaining costs) None

Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup.

Costs for the Year

Wages and salaries $ 308,000

Disposal fees 706,000

Equipment depreciation 90,000

On-site supplies 50,000

Office expenses 210,000

Licensing and insurance 410,000

Total cost $ 1,774,000

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 70 % 0 % 30 % 0 % 100 %

Equipment depreciation 40 % 5 % 25 % 30 % 100 %

On-site supplies 70 % 20 % 10 % 0 % 100 %

Office expenses 15 % 35 % 20 % 30 % 100 %

Licensing and insurance 25 % 0 % 50 % 25 % 100 %

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

	Removing	Estimating and	Working on
	Asbestos	Job setup	Nonroutine jobs	Other	Total
Wages and salaries
Disposal fees
Equipment depreciation
On-site supplies
Office expenses
Licensing and insurance
Total Cost

2. Compute the activity rates for the activity cost pools.

Activity Cost pool	Activity Rate
Removing asbestos		per thousand square feet
Estimating and job set up		per job
Working on nonroutine job		per nonroutine job

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. (Round the "Average cost" to 2 decimal places.)

a. A routine 1,000-square-foot asbestos removal job.

Total cost of the job
Average cost per thousand square feet

b. A routine 2,000-square-foot asbestos removal job.

Total cost of the job

Average cost per thousand square feet

c. A nonroutine 2,000-square-foot asbestos removal job.

Total cost of the job

Average cost per thousand square feet