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-routine 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 $4,800 per thousand square metres to determine the bid price. Since our average cost is only $3,800 per thousand square metres, that leaves enough cushion to take care of the additional costs of non-routine 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 ABC study of all of its costs. Data from the ABC system follow: Total Activity 500,000 m2 Activity Cost Pool Removing asbestos Estimating and job setup Working on non-routine jobs Other (costs of idle capacity and organization-sustaining costs) Activity Measure Thousands of square metres Number of jobs Number of non-routine jobs Not applicable; these costs are not allocated to jobs. 300 jobs* 28 non-routine jobs * 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. $ Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance 280,000 720,000 104,000 76,000 254,000 466,000 Total cost $1,900,000 Distribution of Resource Consumption across Activity Cost Pools Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Removing Asbestos 45% 70% 40% 55% 10% 50% Estimating and Job Setup 10% 0% 0% 15% 40% 0% Working on Non-routine Jobs 30% 30% 35% 25% 35% 40% Other 15% 0% 25% 5% 15% 10% Total 100% 100% 100% 100% 100% 100% 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.) Removing Asbestos Estimating and Job Setup Working on Non-routine Jobs Other Totals $ 0 0 0 Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 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 Activity Rate per thousand square metres per job per non-routine job 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: a. A routine 1,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.) Total cost of the job Average cost per thousand square metres b. A routine 2,000-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 1,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.) Total cost of the job Cost per thousand square metres
