Business, 08.03.2021 20:00 Jasmine3864

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the companyâs 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 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 $2.50 to determine the bid price. Since our average cost is only $2.15 per square foot, 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 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 1,000 square feet
Estimating and job setup Number of jobs 400 jobs
Working on non-routine jobs Number of non-routine jobs 100 non-routine jobs
Other (organization-sustaining costs and idle capacity costs) None

Costs for the Year
Wages and Salaries $328,000
Disposal fees 706,000
Equipment depreciation 90,000
On-site supplies 53,000
Office expenses 230,000
Licensing and insurance 430,000
Total cost $1,837,000

Distribution of Resource Consumption Across Activities

Removing Asbestos Estimating and Job Setup Working on Non-routine Jobs Other Total
Wages and Salaries 60% 10% 20% 10% 100%
Disposal fees 60% 0% 40% 0% 100%
Equipment depreciation 40% 5% 20% 35% 100%
On-site supplies 70% 20% 10% 0% 100%
Office expenses 10% 35% 25% 30% 100%
Licensing and Insurance 35% 0% 50% 15% 100%

Required:

a. Perform the first-stage allocation of costs to the activity cost pools.
b. Compute the activity rates for the activity cost pools.
c. 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.

1. A routine 1,000 square-foot asbestos removal job.
2. A routine 2,000 square-foot asbestos removal job.
3. A non-routine 2,000 square-foot asbestos removal job.

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