Problem 7-18 (Algo) Activity-Based Costing and Bidding on Jobs (L07-2, L07-3, LO7.4) 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 celling 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 $2.80 to determine the bid price. Since our average cost is only $2.575 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart." To shed light on this controversy, the company initiated an activity based costing study of all of its costs. Data from the activity-based costing system follow: Activity Cost Pool Activity Meabure Total Activity Removing asbestos Thousands of square feet 000 thousand square feet Estimating and job setup Number of jobs 400 jobs Working on nonroutine jobs Number of nonroutine jobs 100 nonroutine joba Other (organization-sustaining costs and idle capacity costs) None Note: The 100 nonroutine jobs are included in the total of 400 Jobo. Both nonroutine Jobe and routine Jobs require estimating and setup. Conta for the Year Wages and salaries Disposal toes Equipment depreciation On-site supplies office expenses Licensing and insurance Total cost 372,000 775,000 96,000 50,000 280,000 480,000 5 2.061,000 Distribution of source consumaton Aaron Activities Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Wages and salaries 608 108 200 Disposal fees 600 0 404 Equipment depreciation 501 103 15 On-site supplies 700 20$ 105 office expenses 101 408 200 Licensing and insurance 250 08 608 Other 103 ON 258 05 301 150 Total 100 1008 1005 100 1000 1005 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 Req 2 Beg 3A t Other Total Perform the first stage allocation of costs to the activity cost pools. Removing Estimating Working on Asbestos and Job Nonroutine Setup Jobs Wages and salaries Disposal foos Equiment depreciation DO 3. Umyte LUVILY Iales you Ilave computeu, elemeule LULI LUSE uie aveiaye Lust per uudiu Square 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 Other Total 0 Perform the first-stage allocation of costs to the activity cost pools. Removing Estimating Working on and Job Nonroutine asbestos Setup Jobs Wages and salaries Disposal foes Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost $ 0 $ 0 $ 0 0 0 0 0 0 $ 0 $ 0 Req 2 > Office expenses Licensing and insurance 100 255 408 08 208 601 30% 151 1008 1008 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 poo-square-foot asbestos removal job. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A to 3C Compute the activity rates for the activity cost pools. Activity Cool Pool Romoving asbestos Estimating and job sotup Working on nonroutine jobs Activity Rato per thousand square foot por job per nonroutine job 2. Compute une cuvily rates of the activity Cost Pouls. 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 Reg 2 Reg 3A to 30 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 per thousand square feet to 2 decimal places) 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. Show less Routine Routine 1,000 sq.ft. 2,000 sq. n. Job Nonroutine 2,000 sq, Job job Total cost of the job Average Cont per thousand square feet