Problem $7-18($Algo$)$ Activity$-$Based Costing and Bidding on Jobs $[$LO$7-2,$ LO$7-3,$ LO$7-4]$

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 $$2\mathrm{.}50$ to determine the bid price. Since our average cost is only $$2\mathrm{.}155$ 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:

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

setup.

Required:

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

Compute the activity rates for the activity cost pools.

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.