---## Activity-Based Costing Study - Mercer Asbestos Removal Company### OverviewMercer Asbestos Removal Company specializes in removing potentially toxic asbestos insulation and related products from buildings. A long-standing dispute exists between the company's estimator and work supervisors regarding cost estimation accuracy. Supervisors argue that nonroutine work involving asbestos-contaminated plaster in older buildings is more costly and should incur higher charges compared to routine asbestos removal tasks. In response, the company conducted an activity-based costing (ABC) study, summarized below:### Activity Cost Pools and Measures| Activity Cost Pool | Activity Measure | Total Activity ||----------------------------------|---------------------------|------------------------------|| Removing asbestos | Thousands of square feet | 850 thousand square feet || Estimating and job setup | Number of jobs | 400 jobs || Working on nonroutine jobs | Number of nonroutine jobs | 100 nonroutine jobs || Other (organization-sustaining costs and idle capacity costs) | None | N/A |**Note:** The 100 nonroutine jobs are part of the total 400 jobs. Nonroutine and routine jobs both require estimating and setup activities.### Annual Costs Breakdown| Cost Item | Amount ($) ||--------------------------|-----------------|| 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| Resource/Activity | 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 | ### First-Stage Allocation of Costs to Activity Cost Pools#### Instructions:Complete this question by entering your answers in the tabs below.#### Navigation Tabs:1. **Req 1**2. **Req 2**3. **Req 3A to 3C**#### Task:Perform the first-stage allocation of costs to the activity cost pools.#### Cost Categories:- Wages and salaries- Disposal fees- Equipment depreciation- On-site supplies- Office expenses- Licensing and insurance#### Activity Cost Pools:- **Removing asbestos**- **Estimating and Job Setup**- **Working on Nonroutine Jobs**- **Other**- **Total**| | Removing Asbestos | Estimating and Job Setup | Working on Nonroutine Jobs | Other | Total ||------|--------------------|--------------------------|----------------------------|-------|-------|| Wages and salaries | | | | | $0 || Disposal fees | | | | | $0 || Equipment depreciation | | | | | $0 || On-site supplies | | | | | $0 || Office expenses | | | | | $0 || Licensing and insurance | | | | | $0 || **Total cost** | $0 | $0 | $0 | $0 | $0 |#### Interaction:- Click on "Req 1" to begin the allocation process.- Once completed, proceed to "Req 2" by clicking the "Req 2" button.This table is designed to assist in the allocation of different cost categories to specific activity cost pools, ultimately aiding in effective cost management and analysis for various tasks within an organization. Ensure to fill in each relevant cost category under the appropriate activity cost pool based on the company's financial data and allocation criteria.

Estimated cost of activity = Sum of (Cost categories *% allocation to activity)Activity rate is…

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 nomes, 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 $2.585 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 outine 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 Removing asbestos Estimating and job setup Working on nonroutine jobs Other (organization-sustaining Costs for the Year. Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance Total cost None costs and idle capacity costs) Note: The 100 nonroutine jobs are included in the total of 400 jobs. Both nonroutine jobs and routine jobs require estimating and setup. Activity Measure Thousands of square feet Number of jobs Number of nonroutine jobs Wages and salaries Disposal fees Equipment depreciation On-site supplies Office expenses Licensing and insurance $ 400,000 791,000 96,000 60,000 300,000 500,000 $2,147,000 Distribution of Resource Consumption Across Activities Removing Asbestos 60% 60% 48% 60% 18% 30% Estimating Working on and Job Nonroutine Jobs 20% 40% 25% 15% 25% 50% Total Activity 850 thousand square feet 400 jobs 100 nonroutine jobs Setup 18% 8% 5% 25% 35% Other 18% 30% 8% 38% 20% Total 100% 100% 100% 100% 100% 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. a. A routine 1,000-square-foot asbestos removal job. o. A routine 2,000-square-foot asbestos removal job. c. A nonroutine 2,000-square-foot asbestos removal job.