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 $360 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 Cost Pool Activity Measure Total Activity Removing asbestos Thousands of square feet 758 thousand square feet Estimating and job setup Number of jobs 400 jobs Working on nonroutine Jobs Number of nonroutine jobs 108 non routine jobs Other (organization-sustaining costs and idle capacity costs) None Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both non routine 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 $ 460,000 862,000 104,000 66,000 360,000 560,000 $2,412,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries ses 15 204 Disposal fees 70 ON 304 Equipment depreciation 50% 101 154 On-site supplies 689 305 104 office expenses 15$ 35 209 Licensing and insurace 254 09 60 Other 15% 09 259 09 309 Total 1009 1801 1001 100% 100% 1885 154 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 $23.40 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 Activity Measure Activity for the Year Cleaning carpets Square feet cleaned (05) 11,000 hundred square feet Travel to jobs Miles driven 393,000 miles Job Support Number of jobs 1,900 Jobs Other (organization-sustaining costs and idle capacity costs) None Not applicable The total cost of operating the company for the year is $373,000 which includes the following costs: Wages Cleaning supplies Cleaning equipment depreciation Vehicle expenses Office expenses President's compensation Total cost $ 146,000 34,000 20,000 30,000 69,000 74,000 $ 373,000 Other Resource consumption is distributed across the activities as follows: Distribution of Resource Consumption Across Activities Cleaning Travel Job Carpets to Jobs Support Wages 75% 159 85 Cleaning supplies 100% 0% Cleaning equipment depreciation 66% 09 Vehicle expenses 85 795 0 Office expenses es 08 59 President's compensation 8% 09 32% es 10% 84 345 219 414 68% Total 100% 100% 100% 100% 100% 100% Job support consists of receiving calls from potential customers at the home office, scheduling Jobs, billing, resolving issues, and so on Required: 1. Prepare the first stage allocation of costs to the activity cost pools. 2. Compute the activity rates for the activity cost pools 3. The company recently completed a 400 square foot carpet-cleaning job at the Flying N Ronch-a 52-mile round-trip journey from the company's offices in Bozeman Compute the cost of this job using the activity-based costing system 4. The revenue from the Flying N Ranch was $93.60 (400 square feet @ $23.40 per hundred square feet). Calculate the customer