Problem 7-18 (Static) Activity-Based Costing and Bidding on Jobs [L072, L073, LO7-4] Mercer Asbestos Removal Company removes potentially toxic asbestos insulation from buildings. There has been a long-simmering dispute between the company's estimator and the work supervisors. The on-site supervisors claim the estimators do not adequately distinguish between routine work, such as removing 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 nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: \"Myjob is to measure the area to be cleared ofasbestos. As directed by top management, I simply multiply the square footage by $2.50 to determine the bid price. Because our average cost is only $2.175 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work. 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 gathered the following activity-based costing data: Activity Cost Pool Activity Measure Total Activity Removing asbestos Thousands of square feet 800 thousand square feet Estimating and job setup Number of jobs 500 jobs Working on nonroutine jobs Number of nonroutine jobs 100 nonroutine jobs Other (organization-sustaining costs and idle capacity costs) None Note: The 100 nonroutinejobs are included in the total of 500jobs. Both nonroutinejobs and routinejobs require estimating and setup. Costs for the Year Wages and salaries $ 300,000 Disposal fees 700,000 Equipment depreciation 90,000 Gn-site supplies 50,000 Office expenses 200,000 Licensing and insurance 400,000 Total cost $ 1,740,000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Job Nonroutine Asbestos Setup Jobs Other Total Wages and salaries 50% 10% 30% 10% 100% Disposal fees 60% 0% 40% 0% 100% Equipment depreciation 40% 5% 20% 35% 100% Gn-site supplies 60% 30% 10% 0% 100% Office expenses 10% 35% 25% 30% 100% Licensing and insurance 30% 0% 50% 20% 100%