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(Solution Download) Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products f


 

 

 

 

 

 

 

Mercer Asbestos Removal Company removes potentially toxic

 

asbestos insulation and related products from buildings. There has

 

been a long-simmering dispute between the companyA????1s 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: A????1My job is to measure the area to be

 

cleared of asbestos. As directed by top management, I simply

 

multiply the square footage by $2.80 to determine the bid price.

 

Since our average cost is only $2.30 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.A????1

 

 

 

 

 

 

 

 

 

     To shed light on this controversy,

 

the company initiated an activityarrow-10x10.png-based costing studyarrow-10x10.png of all of its costs. Data from the

 

activityarrow-10x10.png-based costing system follow:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

activityarrow-10x10.png Cost Pool

 

              

Activity

 

Measure

 

Total Activity

 

          

  Removing

 

asbestos

Thousands of square feet800thousand

 

square  feet

  Estimating and job

 

setup

Number of jobs400jobs
  Working on

 

nonroutine jobs

Number of nonroutine jobs100nonroutine jobs
  Other (costs of idle

 

capacity and

 

     organization-sustaining costs)

None

 

   

 

 

 

 

 

 

 

 

Note: The 100 nonroutine jobs are included in the total of 400

 

jobs. Both nonroutine jobs and routine jobs require estimating and

 

setuparrow-10x10.png.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Costs for the

 

Year

  Wages and

 

salaries

$332,000
  Disposal fees740,000
  Equipment

 

depreciation

90,000
  On-site

 

supplies

54,000
  Office expenses240,000
  Licensing and

 

insurance

440,000
  Total cost$1,896,000

 

 

 

 

 

 

 

 

  Distribution of Resource Consumption Across activitiesarrow-10x10.png

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Removing Asbestos

 

Estimating and Job setuparrow-10x10.png

 

Working on Nonroutine Jobs

 

Other

 

Total

  Wages and

 

salaries

50%10%30%10%100%
  Disposal fees70%0%30%0%100%
  Equipment

 

depreciation

40%5%20%35%100%
  On-site

 

supplies

60%25%15%0%100%
  Office expenses10%40%15%35%100%
  Licensing and

 

insurance

25%0%60%15%100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.

 

Perform the first-stage allocation of costs to the activityarrow-10x10.png cost pools.

 

 

 

 

 

 

 

 

2.

 

computearrow-10x10.pngthe activity rates for the activity

 

cost pools.

 

 

 

 

 

 

 

 

 

3.

 

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 accordingarrow-10x10.png to the activity-based costing

 

system.(Round the "Average cost" to 2 decimal

 

places.)

 

 

   

 

 

 

 

 

 

 

 

a.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

b.A routine 2,000-square-foot

 

asbestos removal job.

 

 

 

 

 

 

 

 

 

 

 

 

c.

 

A nonroutine 2,000-square-foot asbestos removal job.

 

 

Please explain and show

 

allarrow-10x10.png work. Use tables where needed.

 

 

 


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