Problem 7-18 (Algo) Activity-Based Costing and Bidding on Jobs [LO7-2, LO7-3, L07-4) 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 for 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 $3.60 to determine the bid price. Since our average cost is only $2.775 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 800 thousand square feet Estimating and job setup Number of jobs 400 jobu Working on nonroutine jobs Number of nonroutine Jobs 100 nonroutine jobs Other (organisation-staining costs and Idle capacity 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 Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost $ 480,000 882,000 108,000 68,000 380,000 380,000 3 2.490,000 Distribution of resource consumption Aeroun Motivation Estimating Working on Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Removing Asbestos 501 704 400 700 150 300 and Job Setup 151 00 50 201 354 os Nonroutine Jobs 201 301 200 100 200 500 Other 15$ 08 356 05 305 200 Total 1000 1000 100 1001 1005 1001 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 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 Req t Perform the first stage allocation of costs to the activity cost pools. Removing asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total 0 0 Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total mit 0 0 0 0 nl s nis $ os 0 700 On-site supplies Office expenses Licensing and insurance 108 208 508 201 356 08 08 308 208 100% 1008 1008 150 308 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 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 Req t Compute the activity rates for the activity cost pools. Activity Cost Pool Activity Rata Removing asbestos per thousand square feet Estimating and job setup per job Working on nonroutine jobs per nonroutine job 2. Compute une activity rates for the acuviLy 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 Reg 2 Req 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 1,000 Routine 2,000 square footjob square footjob Nonrouting 2,000 square footjob Total cost of the job Average Cost per thousand square feet