Problem 7-20 Activity-Based Costing and Bidding on Jobs [LO2, LO3] Vance Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company's estimator has been involved in a long simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and non-routine work, such as removing asbestos contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that non-outine 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 metres by $4 300 per thousand square metres to determine the bid price. Since our average cost is only $3,300 per thousand square metres that leaves enough cushion to take care of the additional costs of non-routine work that shows up. Besides, 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 ABC study of all of its costs. Data from the ABC system follow Activity Cost Pool Activity Measure Total Activity Removing asbestos Thousands of square metres Estimating and job setup Number of jobs 25 Jobs Working on non-routine Jobs Number of non-routine jobs Be non-routine jobs Other (casts of idle capacity and Not applicable these costs are not organization sustaining costs) bllocated to Jobs 500,000 The total number of jobs includes non-routine jobs as well as routine jobs, Non-routine jobs as well as routine jobs require estimating and setup work. Nages and salaries Disposal fees Equipment depreciation Onsite supplies office expenses Licensing and insurance 230,000 45.000 89.000 66,000 216.000 46,00 Total cost 650,00 Distribution of Resource Consumption across Activity Cost Pool Wages and salaries Disposal fees Equipment depreciation On-site supplies office expenses Licensing and insurance Removing Asbestos 40% 754 45% 501 10% Sex Estimating and Bob Setup 10% B% ex 153 401 Working on Non-routine Dobs 35% 25% 40% 25% 30! 45% Other 15% 0% 15% 10% 20% 5% Total 100% 100% 1983 100 100% 100X Required 1. Perform the first stage allocation of costs to the activity cost pools. (Do not leave any empty spaces: input a 0 wherever it is required.) Totals $ 156 500 0 Removing Estimating Working on and Job Non-coutine Other Albstos Setup Job Wages and salaries $ 92.000 s 64,500 Disposal fees + Equipment depreciation On-site supplies Oflice compenses Licensing and insurance Total cost $ 92.000 $ 64,500 $ OS 0 0 0 0 0 156,500 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.) Activity Cost Pool Removing asbestos Estimating and job setup Working on non-routine jobs ped Activity Ratu per thousand square metres per job per non-routine job Book 3. Using the activity rates you have computed determine the total cost and the average cost per thousand square metres of each of the following Jobs according to the ABC system: o. A routine 2,000-square metre asbestos removal job. (Round your answers to 2 decimal places.) Print Total cost of the job Average cost per thousand square metres b. A routine 4.000-square metre asbestos removal job. (Round your answers to 2 decimal places.) Total cost of the job Cost per thousand square metres c. A non-routine 2000-square metre asbestos removal job. (Round your answers to 2 decimal places.) Total cost of the job Cost per thousand square metres