7:10 PM ezto.mheducation.com ..ooo Verizon 33%. Mercer Asbestos Removal Company

Question

7:10 PM ezto.mheducation.com ..ooo Verizon 33%. 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 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 $3.00 to determine the bid price. Since our average cost is only $2.76 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. To shed light on this controversy, the company initiated an activity-based costing system follow Activity Cost Pool activity-based costing study of all of its costs. Data from the Thousands of square feet Estimating and job setup Working on onoutine jobs Other (costs of idle capacity and Number of onroutinejos 00 nonroutine jobs Other costs) None Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup Costs for the Year Wages and salaries Disposal fees s 420,000 14,000 6,000 320,000 Office expenses Licensing and insurance Total cos 2232000 Distribution of Resource Consumption Across Activities Estimating Working on Removing and Jot Nonroutine Wages and salaries Disposal flees 0% 40% 0% 100% On-site supplies Office expenses Licensing and insurance 100 30% 15% 25% 60% 00%

Explanation / Answer

1 Allocation of cost to activity cost pools

420000

2) Activity Rate for activity cost pools

Activity Removing Asbestos Estimating Job Setup Working on Non routine jobs Other Total Wages & Salaries 210000 63000 84000 63000

420000

Disposal Fee 488400 0.00 325600 0.00 814000 Eq. Depreciation 38400 4800 19200 33600 96000 On Site supplies 37200 18600 6200 0.00 62000 Office expense 48000 112000 64000 96000 320000 Licensing 130000 0.00 312000 78000 520000 Total 952000 198400 811000 270600 2232000

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