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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: "Myjob 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 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 study of all of its costs. Data from the activity-based costing system follow Total Activity Activity Cost Pool Removing asbestos Estimating and job setup Working on nonroutine jobs Other (costs of idle capacity and organization-sustaining costs) Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs 1,000 thousand squarefeet 400 jobs 100 nonroutine jobs 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 Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost S 328,000 706,000 90,000 53,000 230,000 430,000 Distribution of Resource Consumption Across Activities Working on Removing Estimating and Nonroutine AsbestosJob Setup Total Other 10% 60% Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance 20% 20% 25% 100% 100% 100% 100% 100% 100% 35% 0% 70% 10% 35% 35% 0% 50% Required: 1. Perform the first-stage allocation of costs to the activity cost pools. Working on Asbestos Job Setup Other Total Jobs Wages and salaries Disposal fees On-site supplies Office expenses Licensing and insurance Total cost 2. Compute the activity rates for the activity cost pools. Removing asbestos Estimating and job setup Working on nonroutine jobs per thousand square feet per job per nonroutine job

Explanation / Answer

1. First stage allocation :

2. Activity Rates :

3.a. A rotine 1,000 square feet asbestos removal job:

b. A routine 2,000 square feet asbestos removal job :

c. A nonroutine 2,000 sq. ft. asbestos removal job:

Removing Asbestos Estimating and Job Setup Working on Non Routine Jobs Others Total $ $ $ $ $ Wages and Salaries 196,800 32,800 65,600 32,800 328,000 Disposal Fees 423,600 0 282,400 0 706,000 Equipment Depreciation 36,000 4,500 18,000 31,500 90,000 On-site Supplies 37,100 10,600 5,300 0 53,000 Office Expenses 23,000 80,500 57,500 69,000 230,000 Licensing and Insurance 150,500 0 215,000 64,500 430,000 Totals 867,000 128,400 643,800 197,800 1,837,000

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