Problem 7-20 Activity-Based Costing and Bidding on Jobs [LO2, LO3]Vance Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company'sestimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that theestimator does not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in olderhomes, and non-routine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisorsbelieve that non-routine work is far more expensive than routine work and should bear higher customer charges. The estimator sumsup his position in this way: "My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiplythe square metres by $4,500 per thousand square metres to determine the bid price. Since our average cost is only $3,500 perthousand square metres, that leaves enough cushion to take care of the additional costs of non-routine work that shows up. Besides, itis difficult to know what is routine or not routine until you actually start tearing things apart."To shed light on this controversy, the company initiated an ABC study of all of its costs. Data from the ABC system follow:Activity Cost PoolRemoving asbestosEstimating and job setupWorking on non-routine jobsOther (costs of idle capacity andorganization-sustaining costs)Wages and salariesDisposal feesEquipment depreciationOn-site suppliesoffice expensesLicensing and insuranceTotal costWages and salariesDisposal feesEquipment depreciationOn-site suppliesoffice expensesLicensing and insurance*The total number of jobs includes non-routine jobs as well as routine jobs. Non-routine jobs as well as routine jobs require estimatingand setup work.Wages and salariesDisposal feesEquipment depreciationOn-site suppliesOffice expensesLicensing and insuranceTotal costActivity Cost PoolRemoving asbestosEstimating and job setupWorking on non-routine jobsActivity MeasureThousands of square metresNumber of jobsNumber of non-routine jobsNot applicable; these costs are notallocated to jobs.$ 250,000675,00095,00070,000RemovingAsbestos230,000430,000$1,750,000Total cost of the jobCost per thousand square metresRemovingAsbestos45870%40%Total cost of the jobCost per thousand square metres55810%50%Job Setup10%Distribution of Resource Consumption acrossActivity Cost PoolsEstimating and Working on Non-routine Jobs0808Estimating andJob Setup15840%0830%30%35%500,000 m2300 jobs25%35%40%Total Activity1. Perform the first-stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; input a O wherever it isrequired.)25 non-routine jobsWorking on Non- Otherroutine JobsActivity Rateper thousand square metresper jobper non-routine jobOther158080425%5815810%2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)Total100%100%100%Totals100%100%100%3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square metres of each ofthe following jobs according to the ABC system:a. A routine 1,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.)Total cost of the jobAverage cost per thousand square metresb. A routine 2,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.)c. A non-routine 1,000-square-metre asbestos removal job. (Round your answers to 2 decimal places.)

Name: Problem 7-20 Activity-Based Costing and Bidding on Jobs [LO2, LO3]Van
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Description: Problem 7-20 Activity-Based Costing and Bidding on Jobs [LO2, LO3]Vance Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company'sestimator has been involved in a long-simmering dispute

Activity rate:— It is the rate used for allocating manufacturing overhead cost to cost objects under…

Business

Accounting

1. Perform the first stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; input a 0 wherever it is required.) Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost Removing Asbestos Estimating and Job Setup Working on Non- routine Jobs Other Totals 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

1. Perform the first stage allocation of costs to the activity cost pools. (Do not leave any empty spaces; input a 0 wherever it is required.) Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost Removing Asbestos Estimating and Job Setup Working on Non- routine Jobs Other Totals 2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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