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 according to the activity-based costing system. (Round the "Average cost" to 2 decimal places.) a. A routine 1,000-square-foot asbestos removal job. Answer is complete but not entirely correct. 1,334 X Total cost of the job Average cost per thousand square feet X 1,333.88 b. A routine 2,000-square-foot asbestos removal job. Answer is complete but not entirely correct. Total cost of the job 2.668 Average cost per thousand square feet $ 1,333.88 c. A nonroutine 2,000-square-foot asbestos removal job. Answer is complete but not entirely correct. $ 9,768 Total cost of the job Average cost per thousand square feet X 4,884.00

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

I am resubmitting this as the guidance I received for question 3. A/B/C is incorrect. 

 

 

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 $2.80 to determine the bid price. Since our average cost is only $2.58 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:

 

Activity Cost Pool Activity Measure Total Activity
Removing asbestos Thousands of square feet   850   thousand squarefeet
Estimating and job setup Number of jobs   400   jobs
Working on nonroutine jobs Number of nonroutine jobs   100   nonroutine 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 setup.

 

Costs for the Year      
Wages and salaries $ 400,000  
Disposal fees   791,000  
Equipment depreciation   96,000  
On-site supplies   60,000  
Office expenses   300,000  
Licensing and insurance   500,000  
Total cost $ 2,147,000  

 

 

Distribution of Resource Consumption Across Activities

 

  Removing Asbestos Estimating and Job Setup Working on Nonroutine Jobs Other Total
Wages and salaries   60 %     10 %     20 %     10 %       100 %
Disposal fees   60 %     0 %     40 %     0 %       100 %
Equipment depreciation   40 %     5 %     25 %     30 %       100 %
On-site supplies   60 %     25 %     15 %     0 %       100 %
Office expenses   10 %     35 %     25 %     30 %       100 %
Licensing and insurance   30 %     0 %     50 %     20 %       100 %

 

 

 

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

 

 


2. Compute the 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 according to the activity-based costing system(Round the "Average cost" to 2 decimal places.)

 

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

 
 
   
Total cost of the job $
Average cost per thousand square feet $

 

 


b. A routine 2,000-square-foot asbestos removal job.

 
 
   
Total cost of the job $
Average cost per thousand square feet $

 

 

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

 
 
   
Total cost of the job $
Average cost per thousand square feet $

 

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 according to the activity-based costing system. (Round the "Average cost" to 2
decimal places.)
a. A routine 1,000-square-foot asbestos removal job.
Answer is complete but not entirely correct.
1,334 X
Total cost of the job
Average cost per thousand square
feet
X
1,333.88
b. A routine 2,000-square-foot asbestos removal job.
Answer is complete but not entirely correct.
Total cost of the job
2.668
Average cost per thousand square
feet
$
1,333.88
c. A nonroutine 2,000-square-foot asbestos removal job.
Answer is complete but not entirely correct.
$ 9,768
Total cost of the job
Average cost per thousand square
feet
X
4,884.00
Transcribed Image Text: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 according to the activity-based costing system. (Round the "Average cost" to 2 decimal places.) a. A routine 1,000-square-foot asbestos removal job. Answer is complete but not entirely correct. 1,334 X Total cost of the job Average cost per thousand square feet X 1,333.88 b. A routine 2,000-square-foot asbestos removal job. Answer is complete but not entirely correct. Total cost of the job 2.668 Average cost per thousand square feet $ 1,333.88 c. A nonroutine 2,000-square-foot asbestos removal job. Answer is complete but not entirely correct. $ 9,768 Total cost of the job Average cost per thousand square feet X 4,884.00
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 7 steps with 7 images

Blurred answer
Knowledge Booster
Classification of Risk
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education