Please help value: 5.00 points Problem 7-18 Activity-Based Costing and Bidding o

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value: 5.00 points Problem 7-18 Activity-Based Costing and Bidding on Jobs LO7-2, LO7-3, LO7-4] 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 i 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 $2.175 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." n older homes and nonroutine 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 Measure Total Activity Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and Thousands of square feet Number of jobs Number of nonroutine jobs 800 thousand square feet 500 jobs 100 nonroutine jobs organization-sustaining costs) None Note: The 100 nonroutine jobs are included in the total of 500 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 $ 300,000 700,000 90,000 50,000 200,000 400,000 Total cost $1,740,000

Explanation / Answer

2.Activity rates for Activity costs

1.Total cost for removing asbestos from 800000 sq feet is 776000

for 1000 square feet it is =970

2.Job set-up for total 500 jobs is 119500

cost per job is=239

3.total costs for 100 Non routine jobs is 643000

cost per job is 6430

3.a A routine 1000 sq.ft asbestos removal job

b.A routine 2000 sq.ft asbestos removal job

c.A non routine 2000 sq.ft asbestos removal job

Removing Asbestos Estimating and Job Setup Working on Non-Routine Jobs Other Total Wages and Salaries 150000 30000 90000 30000 300000 Disposal fees 420000 280000 700000 Equipment Depreciation 36000 4500 18000 31500 90000 On-site Supplies 30000 15000 5000 50000 Office Expenses 20000 70000 50000 60000 200000 Licensing and insurance 120000 200000 80000 400000 Total Cost 776000 119500 643000 201500 1740000

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